Alpha Products has 5,200 shares outstanding at a market price per share of $31. Beta Distributors has 7,500 shares outstanding at a market price of $38 a share. Neither ﬁrm has any debt. Beta is
Acquiring Alpha for $185,000 in cash. What is the merger premium per share?

Question

Quizplus · Accepted Answer

To find the merger premium per share, first find the total value of Alpha:
Total Value of Alpha = Number of shares outstanding * Market price per share
Total Value of Alpha = 5,200 * $31
Total Value of Alpha = $161,200

Since Beta is acquiring Alpha for $185,000, the merger premium is:
Merger Premium = Acquisition price - Total value of Alpha
Merger Premium = $185,000 - $161,200
Merger Premium = $23,800

To find the merger premium per share, divide the merger premium by the number of shares outstanding in Alpha:
Merger Premium per share = Merger Premium / Number of shares outstanding
Merger Premium per share = $23,800 / 5,200
Merger Premium per share = $4.58

Therefore, the merger premium per share is $4.58, which corresponds to choice C.

Alpha Products Has 5,200 Shares Outstanding at a Market Price