The Sligo Co. is planning on merging with the Thorton Co. Sligo will pay Thorton's stockholders the current value of their stock in shares of Sligo. Sligo currently has 2,300 shares of stock outstanding at a market price of $20 a share. Thorton has 1,800 shares outstanding at a price of $15 a share. How many shares of stock will be outstanding in the merged firm?
A) 1,800 shares
B) 2,300 shares
C) 2,750 shares
D) 3,650 shares
E) 4,100 shares

Question

Quizplus · Accepted Answer

First, calculate the total value of Thorton's shares: 1,800 shares * $15/share = $27,000. Then, determine how many shares of Sligo this equates to: $27,000 / $20/share = 1,350 shares. Add the original Sligo shares to the new shares issued to Thorton's shareholders: 2,300 shares + 1,350 shares = 3,650 shares.