JLM has 7,400 shares of stock outstanding at a market price per share of $18.Hi-Tek has 36,000 shares outstanding that sell for $45 a share.By merging,$5,000 of synergy can be created.Hi-Tek is acquiring JLM for $135,000 worth of Hi-Tek stock.What is the postmerger value per share?
A)$45.00
B)$46.57
C)$45.08
D)$44.92
E)$44.83

Question

Quizplus · Accepted Answer

First, we need to determine the total value of JLM's shares:

7,400 shares x $18 per share = $133,200

Next, we need to determine the number of shares of Hi-Tek that will be issued to purchase JLM:

$135,000 / $45 per share = 3,000 shares

Now we can calculate the total value of the merged company:

Hi-Tek's pre-merger value: 36,000 shares x $45 per share = $1,620,000
JLM's pre-merger value: $133,200
Synergy value: $5,000

Total post-merger value: $1,758,200

To find the post-merger value per share, we divide the total value by the new total number of shares:

(36,000 + 7,400) + 3,000 = 46,400 shares

Post-merger value per share: $1,758,200 / 46,400 shares = $37.82 per share

However, we also need to add in the $5,000 in synergy value to the total post-merger value:

$1,758,200 + $5,000 = $1,763,200

Now we recalculate the post-merger value per share:

$1,763,200 / 46,400 shares = $38.02 per share

Since Hi-Tek shares are selling for $45 per share, this represents a premium of $7.98 per share for JLM shareholders.

Therefore, the correct answer is C) $45.08.

JLM Has 7,400 Shares of Stock Outstanding at a Market