Firm A is acquiring Firm B for £25,000 in cash.Firm A has 2,000 shares of equity outstanding at a market value of £21 a share.Firm B has 1,200 shares of equity outstanding at a market price of £17 a share.Neither firm has any debt.The net present value of the acquisition is £1,500.What is the price per share of Firm A after the acquisition?

Question

Quizplus · Accepted Answer

The total value of Firm A before the acquisition is 2,000 shares * £21 = £42,000. The cost of acquiring Firm B is £25,000, and the NPV of the acquisition is £1,500. The new total value of Firm A is £42,000 + £1,500 = £43,500. The number of shares remains 2,000, so the price per share after the acquisition is £43,500 / 2,000 = £21.75.

Firm a Is Acquiring Firm B for £25,000 in Cash