The Nebraska Corporation is considering acquiring the Lincoln Corporation. The data for the two companies are as follows:

Lincoln Nebraska
Total earnings $500,000 $2,000,000
Number of shares of stock outstanding 200,000 1,000,000
Price-earnings ration (P/E) 16 20
Market price per share $40 $40

a. the Nebraska Corp is going to give Lincoln Corp a 50% premium over Lincoln Corp’s current market value. What price will it pay?
b. at the price computed in part a, what is the total market value of Lincoln Corp? (use number of Lincoln Corp shares times price)
c. at the price computed in part a, what is the P/E ration Nebraska Corp is assigning to Lincoln Corp?
d. how many sharesw must Nebraska Corp issue to buy the Lincoln Cor at the total value computed in part b? (keep in mind Nebraska Corp’s price per share is $40)
e. given the answer to part d, how many shares will Nebraska Corp have after the merger?
f. add together the total earnings of both corporations and divide by the total shares computed in part e. What are the postmerger earnings per share?
g. why have Nebraska Corps earnings per share gone down?
h. how can Nebraska Corp hope to overcome this dilution?