Calculate the pro forma EPS when an acquirer with EPS of $5 and 10 million shares acquires a target with EPS of $3 and 5 million shares using an exchange ratio of 1.2.

To determine the pro forma earnings per share (EPS) after the merger, we first need to calculate the total earnings for both the acquirer and the target company.

1. Calculate the total earnings for each company:

• The acquirer has an EPS of $5 and 10 million shares, so the total earnings are:

[

\text{Earnings}{acquirer} = EPS{acquirer} \times \text{Shares}_{acquirer} = 5 \times 10,000,000 = 50,000,000

]

• The target has an EPS of $3 and 5 million shares, so the total earnings are:

[

\text{Earnings}{target} = EPS{target} \times \text{Shares}_{target} = 3 \times 5,000,000 = 15,000,000

]

2. Calculate the combined total earnings:

[

\text{Combined Earnings} = \text{Earnings}{acquirer} + \text{Earnings}{target} = 50,000,000 + 15,000,000 = 65,000,000