Cassandra's Boutique has 2,100 shares outstanding at a market price per share of $26. Sally's has 3,000 shares outstanding at a market price of $41 a share. Neither firm has any debt. Sally's is acquiring Cassandra's for $58,000 in cash. The incremental value of the acquisition is $2,500. What is the value of Cassandra's Boutique to Sally's?

Question

Quizplus · Accepted Answer

First, we need to calculate the total market value of Cassandra's Boutique and Sally's.

Cassandra's Boutique value = 2,100 shares x $26/share = $54,600 
Sally's value = 3,000 shares x $41/share = $123,000

Next, we need to subtract out the $58,000 cash that Sally's is paying for the acquisition: 
Sally's value after acquisition = $123,000 - $58,000 = $65,000

The incremental value of the acquisition is $2,500, which means that Cassandra's value is $2,500 more valuable to Sally's than its market value.

Therefore, the value of Cassandra's Boutique to Sally's is: 
$54,600 + $2,500 = $57,100

Therefore, the best choice is C.

Cassandra's Boutique Has 2,100 Shares Outstanding at a Market Price