Trailer World is being acquired by Northern Travels, Inc. for $65,000 worth of Northern's stock. Northern has 5,000 shares of stock outstanding at a price of $32.50 a share. Holiday has 3,000 shares outstanding with a market value of $26 a share. The incremental value of the acquisition is $3,100. What is the total number of shares in the new firm?

Question

Quizplus · Accepted Answer

Northern Travels, Inc. will issue additional shares to acquire Trailer World. The value of the acquisition is $65,000, and Northern's stock is priced at $32.50 per share. Therefore, the number of new shares issued is $65,000 / $32.50 = 2,000 shares. Adding these to the existing 5,000 shares, the total number of shares in the new firm is 5,000 + 2,000 = 7,000 shares.

Trailer World Is Being Acquired by Northern Travels, Inc