Calipers, Inc. is acquiring Johnson Warehouse for $47,000 in cash. Calipers has 2,700 shares of stock outstanding at a market value of $32 a share. Johnson Warehouse has 3,200 shares of stock outstanding at a market price of $14 a share. Neither firm has any debt. The net present value of the acquisition is $1,800. What is the value of Caliper's after the acquisition?

Question

Quizplus · Accepted Answer

The value of Calipers after the acquisition is the sum of its initial market value, the market value of Johnson Warehouse, and the net present value of the acquisition. Calipers' initial market value is 2,700 shares * $32 = $86,400. Johnson Warehouse's market value is 3,200 shares * $14 = $44,800. The total cost of acquisition is $47,000 in cash. The net present value of the acquisition is $1,800. Therefore, the value of Calipers after the acquisition is $86,400 + $44,800 - $47,000 + $1,800 = $86,000.