Consider Two Firms,Big Company and Little Enterprises,both with Earnings of $6

Multiple Choice

Consider two firms,Big Company and Little Enterprises,both with earnings of $6 per share and 2 million shares outstanding.Big is a mature company with few growth opportunities and a stock price of $56 per share.Little is a new firm with much higher growth opportunities and a stock price of $72 per share.Assume Little acquires Big using its own stock and the takeover adds no value.In a perfect capital market,how many shares must Little offer Big's shareholders in exchange for their shares?

A) 1.556 shares of Little for each share of Big Enterprises
B) 0.643 shares of Little for each share of Big Enterprises
C) 1 share of Little for each share of Big Enterprises
D) 1.286 shares of Little for each share of Big Enterprises
E) 0.778 shares of Little for each share of Big Enterprises