Aardvark Enterprises has agreed to be acquired by Lawson Products in exchange for $30,000 worth of Lawson Products stock. Lawson has 3,000 shares of stock outstanding at a price of $28 a share. Aardvark has 1,100 shares outstanding with a market value of $23 a share. The incremental value of the acquisition is $1,400. What is the value of Lawson Products after the merger?

Question

Quizplus · Accepted Answer

The incremental value of the acquisition is the difference between the value of the target company before and after the acquisition, which is $1,400 in this case.

To find the value of Lawson Products after the merger, we need to calculate the total value of Lawson Products and the value of Aardvark Enterprises before the merger.

Before the merger, the total value of Lawson Products is 3,000 shares x $28 per share = $84,000.

The value of Aardvark Enterprises before the merger is 1,100 shares x $23 per share = $25,300.

After the merger, Lawson Products will have $30,000 worth of additional stocks, which means the total value of Lawson Products will be $84,000 + $30,000 = $114,000.

Since Aardvark Enterprises has an incremental value of $1,400, the total value of the merged company will be $114,000 + $1,400 = $115,400.

Therefore, the value of Lawson Products after the merger is D) $110,700.

Aardvark Enterprises Has Agreed to Be Acquired by Lawson Products