Firm A is being acquired by Firm B for $38,000 worth of Firm B stock. The incremental value of the acquisition is $7,400. Firm A has 2,500 shares of stock outstanding at a price of $22 a share. Firm B has 7,400 shares of stock outstanding at a price of $48 a share. What is the value per share of Firm B after the acquisition?

Question

Quizplus · Accepted Answer

The total value after the acquisition is the sum of the value of Firm B, the value of Firm A, and the incremental value. Firm A's value is 2,500 shares * $22 = $55,000. Firm B's value is 7,400 shares * $48 = $355,200. The total value after acquisition is $355,200 + $55,000 + $7,400 = $417,600. The total number of shares after the acquisition is 7,400 + ($38,000 / $48) = 8,192. The value per share is $417,600 / 8,192 = $50.98.

Firm a Is Being Acquired by Firm B for $38,000