Assume the following financial data for the Rotan Corp. and the Mosley Corp.
| Rotan | Mosley | |
| Total earnings | $300,000 | $600,000 |
| Number of shares of stock outstanding | 100,000 | 300,000 |
| Earnings per share | $3.00 | $2.00 |
| Price-earnings ratio (P/E) | 16.7× | 25× |
| Market price per share | $50 | $50 |
If all the shares of Rotan Corp. are exchanged for Mosley Corp. on a sharefor- share basis, what will the postmerger earnings per share be for Mosley Corp.? Use an approach similar to that in Table 20–3 on page 627.
( 20-3 Postmerger earnings per share)
| Total earnings: Small ($200,000) + Expand ($500,000) | $700,000 |
| Shares outstanding in surviving corporation: | |
| Old (200,000) + New (50,000) | 250,000 |
| New earnings per share for Expand Corporation =\frac{\$700,000}{250,000} =$2.80 | |
