Firm A is being acquired by Firm B for $40,000 worth of Firm B stock. The incremental value of the acquisition is $2,100. Firm A has 1,900 shares of stock outstanding at a price of $20 a share. Firm B has 2,500 shares of stock outstanding at a price of $40 a share. What is the value per share of Firm B after the acquisition?

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The total value of Firm B before the acquisition is 2,500 shares * $40 = $100,000. The total value of Firm A is 1,900 shares * $20 = $38,000. The combined value of Firms A and B before the incremental value is added is $100,000 + $38,000 = $138,000. Adding the incremental value of the acquisition, $2,100, the total combined value becomes $138,000 + $2,100 = $140,100. After the acquisition, Firm B issues $40,000 worth of its stock to acquire Firm A, which does not change the total combined value but increases the number of shares outstanding for Firm B. The $40,000 worth of Firm B stock at a price of $40 per share equals 1,000 shares ($40,000 / $40). So, the new total number of shares for Firm B is 2,500 + 1,000 = 3,500 shares. The value per share of Firm B after the acquisition is $140,100 / 3,500 shares = $40.03.

Firm a Is Being Acquired by Firm B for $40,000