Cavalier Enterprises has agreed to be acquired by The Fox Hunt for $65,000 worth of The Fox Hunt stock. The Fox Hunt currently has 3,300 shares of stock outstanding at a price of $32 a share.
Cavalier Enterprises has 2,400 shares outstanding at a price of $26 a share. The incremental value
Of the acquisition is $2,800. What is the value per share of The Fox Hunt stock after the acquisition?

Question

Quizplus · Accepted Answer

The incremental value of the acquisition is the difference between the value of Cavalier Enterprises at its current stock price and the value of the acquisition price in stock.

Incremental value = $2,800 = (number of shares received x share price) - (number of shares outstanding x current share price)

Solving for the number of shares received:

(number of shares received x $32) - (2,400 x $26) = $2,800 
(number of shares received x $32) = $65,200 
number of shares received = 2,037.5

Therefore, The Fox Hunt will issue 2,037.5 shares of stock to acquire Cavalier Enterprises.

The total number of shares outstanding after the acquisition will be:

3,300 + 2,037.5 = 5,337.5

The total value of The Fox Hunt stock after the acquisition will be:

$65,000 / 2,037.5 = $31.91 per share

Adding the incremental value per share:

$31.91 + ($2,800 / 2,037.5) = $32.04 per share

Therefore, the value per share of The Fox Hunt stock after the acquisition is $32.04. Answer choice A is correct.

Cavalier Enterprises Has Agreed to Be Acquired by the Fox