The Following Data on a Merger Is Given Firm a Has Proposed to Acquire Firm B at a l

Multiple Choice

The following data on a merger is given: $$\begin{array} { l c l l } & \text { Firm A } & \text { Firm B Firm AB } \\\text { Price per share } & \$ 100 & \$ 10 & \\\text { Total earnings } & \$ 500 & \$ 300 & \\\text { Shares outstanding } & 100 & 40 & \\\text { Total value } & \$ 10,000 & \$ 400 & \$ 11,000\end{array}$$
Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock.Calculate the postmerger P/E ratio assuming cash is used in the acquisition.

A) 12.75
B) 6.25
C) 13.75