Consider Two Firms,Left Company and Right Enterprises,both with Earnings of $2.50

Multiple Choice

Consider two firms,Left Company and Right Enterprises,both with earnings of $2.50 per share and 15 million shares outstanding.Left is a mature company with few growth opportunities and a stock price of $7 per share.Right is a new firm with much higher growth opportunities and a stock price of $16 per share.Assume Right acquires Left using its own stock and the takeover adds no value.In a perfect capital market,how many shares must Right offer Left's shareholders in exchange for their shares?

A) 2.2857 shares of Right for each share of Left Enterprises
B) 0.4375 shares of Right for each share of Left Enterprises
C) 1 share of Right for each share of Left Enterprises
D) 0.6957 shares of Right for each share of Left Enterprises
E) 0.7425 shares of Right for each share of Left Enterprises