Andover Bank is planning to purchase Berkley Bank.The current market value of Andover's stock is $55 per share while that of Berkley's stock is $15 per share.Andover plans to pay Berkley's stockholders a $5 bonus per share.Currently,Andover has 100,000 shares outstanding and earnings per share of $12,while Berkley has 50,000 shares outstanding and earnings per share of $5.What will be the total number of shares outstanding for the new bank?

Question

Quizplus · Accepted Answer

The total number of shares outstanding for the new bank will be 118,182 shares. This is because Andover has 100,000 shares outstanding and Berkley has 50,000 shares outstanding. When the two banks merge, the total number of shares outstanding will be 100,000 + 50,000 = 150,000 shares. However, Andover is paying Berkley's stockholders a $5 bonus per share, so the total number of shares outstanding will be reduced by the number of shares that Andover repurchases. Andover will repurchase 50,000 shares * $5 per share = $250,000 worth of shares. This will reduce the total number of shares outstanding to 150,000 - 250,000 = 118,182 shares.

Andover Bank Is Planning to Purchase Berkley Bank