Earnings per Share. The following data concerning companies A and B are presented: Company A         Company B Net income                                        $35,000 $50,000 Shares outstanding...

Earnings per Share. The following data concerning companies A and B are presented:

Company A         Company B

Net income                                        $35,000 $50,000

Shares outstanding                         5,000                     10,000

Earnings per share                           $7.00                     $5.00

P/E ratio                                               10                          14

Market price                                      $70                         $70

Company B is the acquiring company, exchanging its shares on a one-for-one basis for company A’s shares. The exchange ratio is based on the market prices of company A and company B stock.

(a) What will earnings per share be subsequent to the merger? (b) What is the change in earnings per share for the stockholders of companies A and B?