Sleep Tight is acquiring Restful Inns for $52,500 in cash. Sleep Tight has 3,000 shares of stock outstanding at a market price of $38 a share. Restful Inns has 2,100 shares of stock outstanding at a market price of $24 a share. Neither firm has any debt. The incremental value of the acquisition is $1,700. What is the price per share of Sleep Tight after the acquisition?
A) $36.92
B) $37.30
C) $37.87
D) $39.19
E) $39.29

Question

Quizplus · Accepted Answer

The total value of Sleep Tight after the acquisition is the sum of its initial market value, the cash paid for Restful Inns, and the incremental value. The initial market value of Sleep Tight is 3,000 shares * $38 = $114,000. The total value after acquisition is $114,000 + $1,700 = $115,700. The number of shares remains 3,000. Therefore, the price per share is $115,700 / 3,000 = $37.87.

Sleep Tight Is Acquiring Restful Inns for $52,500 in Cash