Mercantile Exchange is being acquired by National Sales. The incremental value of the acquisition is $2,500. Mercantile Exchange has 1,200 shares of stock outstanding at a price of $26 a share. National Sales has 6,500 shares of stock outstanding at a price of $54 a share. What is the net present value of the acquisition given that the actual cost of the acquisition using company stock is $32,780?
A) $887
B) $1,011
C) $920
D) $367
E) $1,046

Question

Quizplus · Accepted Answer

First, calculate the market value of Mercantile Exchange: 
1,200 shares x $26/share = $31,200

Then calculate the market value of National Sales: 
6,500 shares x $54/share = $351,000

The total market value after the acquisition will be: 
$31,200 + $351,000 = $382,200

The incremental value of the acquisition is given as $2,500.

Therefore, the value of the acquisition using company stock will be: 
$32,780

To find the net present value, we need to subtract the value of the acquisition from the total market value: 
$382,200 - $32,780 = $349,420

However, we also need to subtract the incremental value of the acquisition: 
$349,420 - $2,500 = $346,920

Therefore, the net present value of the acquisition is $920 (option C).

Mercantile Exchange Is Being Acquired by National Sales