easy · Principles of Finance cost-of-capital-structure
A firm with a price-to-earnings (P/E) ratio of 20x acquires a target firm with a P/E of 12x in an all-stock transaction.
Assuming no synergies and no deal costs, how will the acquirer's Earnings Per Share (EPS) likely change immediately after the deal?
- The EPS will increase (accretive).
- The EPS will decrease (dilutive).
- The EPS will remain exactly the same.
- The EPS will decrease due to the addition of more shares.
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