Holiday & Sons is being acquired by Miller's for £20,000 worth of Miller's equity.Miller has 1,300 shares of equity outstanding at a price of £20 a share.Holiday has 1,000 shares outstanding with a
Market value of £18 a share.The incremental value of the acquisition is £2,000.What is the total
Number of shares in the new ﬁrm?
A)1,000 shares
B)1,300 shares
C)1,500 shares
D)2,000 shares
E)2,300 shares

Question

Quizplus · Accepted Answer

The total number of shares in the new firm is calculated by adding the original shares of Miller's (1,300 shares) to the new shares issued for the acquisition. Miller's acquires Holiday & Sons for £20,000 worth of Miller's equity. Given Miller's share price is £20, the number of new shares issued for the acquisition is £20,000 / £20 = 1,000 shares. Therefore, the total number of shares in the new firm is 1,300 (original Miller's shares) + 1,000 (new shares issued) = 2,300 shares.

Holiday & Sons Is Being Acquired by Miller's for £20,000