New Tech has a market value of $452,000.Emerson Electrics has 37,000 shares of stock outstanding at a price per share of $21.Emerson Electrics is acquiring New Tech in exchange for 21,500 shares of Emerson Electrics stock.The merger is expected to create $3,000 of synergy.What is the acquisition net present value?
A)−$790
B)$3,511
C)$2,503
D)$2,214
E)$3,000

Question

Quizplus · Accepted Answer

Number of postmerger shares = 37,000 + 21,500 = 58,500 shares V_AB = $452,000 + (37,000 × $21)+ $3,000 = $1,232,000 Postmerger share value = $1,232,000 / 58,500 = $21.0598 Cost of acquisition = 21,500 × $21.0598 = $452,786 NPV of acquisition = $452,000 + $3,000 − $452,786 = $2,214

New Tech Has a Market Value of $452,000