Firm A is acquiring Firm B for $69,000 in cash. Firm A has 4,300 shares of stock outstanding at a market value of $32 a share. Firm B has 2,100 shares of stock outstanding at a market price of $32 a share. Neither firm has any debt. The incremental value of the acquisition is $2,200. What is the price per share of Firm A's stock after the acquisition?

Question

Quizplus · Accepted Answer

First, we need to calculate the total market value of Firm A and B before the acquisition:
Market value of Firm A = 4,300 x $32 = $137,600
Market value of Firm B = 2,100 x $32 = $67,200

The incremental value of the acquisition is $2,200, so the total value of the two firms after the acquisition is:
$69,000 + $67,200 + $2,200 = $138,400

Now, we can find the new market value per share of Firm A by dividing the total market value by the new number of shares outstanding after the acquisition:
New shares outstanding = 4,300 + 2,100 = 6,400
New market value per share of Firm A = $138,400 / 6,400 = $21.56
To find the new price per share of Firm A's stock, we need to add the incremental value of the acquisition per share:
New price per share of Firm A's stock = $21.56 + ($2,200 / 6,400) = $32.09

Therefore, the correct answer is choice C.

Firm a Is Acquiring Firm B for $69,000 in Cash