Midway Supply is planning on merging with the Riverton Company. Midway will pay Riverton's stockholders the current value of their stock in shares of Midway. Midway currently has 3,500 shares of stock outstanding at a market price of $24 a share. Riverton has 1,200 shares outstanding at a price of $9 a share. How many shares of stock will be outstanding in the merged firm?
A) 3,890 shares
B) 3,910 shares
C) 3,950 shares
D) 4,025 shares
E) 4,130 shares

Question

Quizplus · Accepted Answer

Midway will issue new shares to Riverton's shareholders equivalent to the value of Riverton's shares. Riverton's total market value is 1,200 shares * $9 = $10,800. Midway's share price is $24, so $10,800 / $24 = 450 new shares will be issued. Adding these to Midway's existing 3,500 shares results in 3,950 shares outstanding.

Midway Supply Is Planning on Merging with the Riverton Company