Firm A is being acquired by Firm B for $40,000 worth of Firm B stock. The incremental value of the acquisition is $2,100. Firm A has 1,900 shares of stock outstanding at a price of $20 a share. Firm B
Has 2,500 shares of stock outstanding at a price of $40 a share. What is the value per share of Firm
B after the acquisition?
A) $39.96
B) $39.98
C) $40.00
D) $40.03
E) $40.05

Question

Quizplus · Accepted Answer

First, we need to calculate the total value of Firm A before the acquisition: 
$20 per share * 1,900 shares = $38,000 
Since Firm A is being acquired for $40,000 worth of Firm B stock, we know that the value of Firm B is at least $40,000 + $2,100 = $42,100. 
Next, we need to determine how many shares of Firm B will be outstanding after the acquisition: 
$40,000 / $40 per share = 1,000 shares 
Total shares of Firm B after acquisition = 2,500 + 1,000 = 3,500 shares 
New value per share of Firm B = ($42,100 / 3,500 shares) ≈ $40.03, so the answer is D.

Firm a Is Being Acquired by Firm B for $40,000