Babson Industrial has agreed to merge with Dailey Iron for $32,000 worth of Dailey Iron stock. Babson has 2,000 shares of stock outstanding at a price of $34 a share. Dailey has 2,600 shares outstanding with a market value of $13 a share. The incremental value of the acquisition is $900. What is the value of Dailey Iron after the merger?

Question

Quizplus · Accepted Answer

The value of Dailey Iron after the merger is calculated by adding the market value of Dailey Iron before the merger, the value of Babson Industrial in terms of Dailey Iron stock, and the incremental value of the acquisition. Dailey Iron's initial market value is 2,600 shares * $13 = $33,800. The value of Babson Industrial in Dailey Iron stock is $32,000. Adding the incremental value of $900 gives a total value of $33,800 + $32,000 + $900 = $66,700. However, the correct calculation should consider the total value of the combined entity, which is $33,800 (Dailey's initial value) + $68,000 (Babson's value in Dailey's terms) + $900 (incremental value), resulting in $102,700.

Babson Industrial Has Agreed to Merge with Dailey Iron for $32,000