Principal, Inc. is acquiring Secondary Companies for $29,000 in cash. Principal has 2,500 shares of stock outstanding at a market price of $30 a share. Secondary has 1,600 shares of stock
Outstanding at a market price of $15 a share. Neither ﬁrm has any debt. The net present value of the
Acquisition is $4,500. What is the price per share of Principal after the acquisition?

Question

Quizplus · Accepted Answer

The total value of Principal after the acquisition is the sum of its current market value, the market value of Secondary, and the NPV of the acquisition. The new price per share is this total value divided by the total number of shares outstanding after the acquisition.