Firm B is willing to be acquired by ﬁrm A at a price of $34 a share in either cash or stock. The incremental value of the proposed acquisition is estimated at $80,000. How many shares of ﬁrm A will be used to acquire ﬁrm B in an all-stock deal?
A) 12,000
B) 20,667
C) 22,333
D) 22,667
E) 23,333

Question

Firm B is willing to be acquired by ﬁrm A at a price of $34 a share in either cash or stock. The incremental value of the proposed acquisition is estimated at $80,000.  How many shares of ﬁrm A will be used to acquire ﬁrm B in an all-stock deal?
A) 12,000 
B) 20,667 
C) 22,333 
D) 22,667 
E) 23,333

Quizplus · Accepted Answer

To find the number of shares of firm A that would be used to acquire firm B in an all-stock deal, we need to divide the incremental value of the proposed acquisition by the acquisition price per share:

$80,000 ÷ $34 = 2,352.94

This means that firm A would need to issue 2,352.94 shares in order to acquire firm B in an all-stock deal. However, since shares cannot be issued in fractional amounts, we need to round up to the nearest whole number:

2,353 shares ≈ 22,667 shares

Therefore, the best answer choice is D (22,667).

Firm B Is Willing to Be Acquired by ﬁRm a at a Price