Jane's Footwear is planning on merging with Trailer Shoes. Jane's Footwear will pay Trailer Shoes' shareholders the current value of their stock in shares of Jane's Footwear stock. Jane's Footwear currently has 4,700 shares of stock outstanding at a market price of $25 a share. Trailer Shoes has 2,500 shares outstanding at a price of $31 a share. How many shares of stock will be outstanding in the merged firm?

Question

Quizplus · Accepted Answer

Jane's Footwear will issue new shares to Trailer Shoes' shareholders equivalent to the value of Trailer Shoes' shares. Trailer Shoes' total market value is 2,500 shares * $31 = $77,500. Jane's Footwear's share price is $25, so they will issue $77,500 / $25 = 3,100 new shares. Adding these to the existing 4,700 shares, the merged firm will have 4,700 + 3,100 = 7,800 shares outstanding.

Jane's Footwear Is Planning on Merging with Trailer Shoes