Assume the following financial data for Noble Corporation and Barnes Enterprises:
Total earnings $1,200,000 $3,600,000
Number of shares of stock outstanding 600,000 2,400,000
Earnings per share $2.00 $1.50
Price-earnings ratio (P/E) 24× 32×
Market price per share $48 $48
a. If all the shares of the Noble Corporation are exchanged for those of Barnes Enterprises on a share-for-share basis, what will postmerger earnings per share be for Barnes Enterprises?
b. Explain why the earnings per share of Barnes Enterprises changed.
c. Can we necessarily assume that Barnes Enterprises is better off after the merger?
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