The Sligo Co. is planning on merging with the Thorton Co. Sligo will pay Thorton's stockholders the current value of their stock in shares of Sligo. Sligo currently has 2,300 shares of stock outstanding
At a market price of $20 a share. Thorton has 1,800 shares outstanding at a price of $15 a share.
How many shares of stock will be outstanding in the merged ﬁrm?
A) 1,800 shares
B) 2,300 shares
C) 2,750 shares
D) 3,650 shares
E) 4,100 shares

Question

Quizplus · Accepted Answer

The merged firm will have the original 2,300 shares of Sligo plus the equivalent number of Sligo shares given to Thorton's shareholders. Thorton's total market value is 1,800 shares * $15 = $27,000. At Sligo's price of $20 per share, $27,000 is equivalent to 1,350 shares ($27,000 / $20). Therefore, the total shares outstanding will be 2,300 + 1,350 = 3,650 shares.