Racing Motors has a market value of $187,000.PJ Racing has 22,500 shares of stock outstanding at a price per share of $43.PJ Racing is acquiring Racing Motors in an exchange for 4,350 shares of PJ Racing stock.The merger is expected to create $21,000 of synergy.The postmerger value of the firm will be ________ and the postmerger price per share will be ________.
A)$1,215,000; $43.78
B)$1,865,500; $44.06
C)$1,240,000; $42.89
D)$1,040,000; $44.06
E)$1,175,500; $43.78

Question

Quizplus · Accepted Answer

The postmerger value is the sum of the market values of both companies plus the synergy: $187,000 + (22,500 * $43) + $21,000 = $1,175,500. The postmerger price per share is the postmerger value divided by the total number of shares after the merger: $1,175,500 / (22,500 + 4,350) = $43.78.

Racing Motors Has a Market Value of $187,000