Question

7. It is possible for the postmerger P/E ratio to move in a direction opposite to that of the immediate postmerger earnings per share. Explain why this could happen.

Answer 1

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Answer:

Indeed, it is possible for the post merger P/E proportion to move toward a path inverse to that of the prompt post merger profit per share. The P/E proportion following the merger is profoundly relied upon the acquiring value for example the sum paid for the acquisition.The post merger P/E proportion is highly relied upon the collaboration of the merger

The fundamental purpose for this is, an organization with high development potential will be gained at a high worth and around then the P/E proportion of the organization will be less because of the high worth paid for obtaining. For this situation, dilution in the profit per share happens and the income per offer will be diluted. But P/E proportion will increment after the merger, when the organization gets the real advantage of merger, for example after the merger if the development of the organization is high and at a decent level this will build the income of the organization which expands the profit per share and the market estimation of the stock, which will increase the P/E proportion