The Peris Co. is planning on merging with the Thornton Co. Peris will pay Thornton's stockholders the current value of their stock in shares of Peris. Peris currently has 2,300 shares of stock outstanding at a market price of $20 a share. Thornton has 1,800 shares outstanding at a price of $15 a share. How many shares of stock will be outstanding in the merged firm?
A) 1,800 shares
B) 2,300 shares
C) 2,750 shares
D) 3,650 shares
E) 4,100 shares

Question

Quizplus · Accepted Answer

The value of the shares that Peris will pay to Thornton's stockholders is:
1,800 shares x $15/share = $27,000
To pay this amount, Peris will issue:
$27,000 ÷ $20/share = 1,350 shares of Peris stock
After the merger, the total number of shares outstanding will be:
2,300 shares (Peris) + 1,800 shares (Thornton) + 1,350 shares (issued to Thornton's stockholders) = 5,450 shares
Therefore, the correct answer is D) 3,650 shares (the sum of Peris and Thornton's original shares).