Ferns and Plants are all-equity firms.Ferns has 2,500 shares outstanding at a market price of $28 a share.Plants has 2,500 shares outstanding at a price of $41 a share.Plants is acquiring Ferns for $72,000 in cash.The synergy of the acquisition is $3,500.What is the value of Ferns to Plants?

Question

Quizplus · Accepted Answer

To determine the value of Ferns to Plants, we need to calculate the total value of Ferns, including the synergy, and subtract any amount of cash paid in the acquisition.

Total value of Ferns = (Number of shares outstanding) x (Market price per share) + Synergy
Total value of Ferns = 2,500 x $28 + $3,500
Total value of Ferns = $73,500

Plants paid $72,000 in cash for Ferns, so the value of Ferns to Plants is:

Value of Ferns to Plants = Total value of Ferns - Cash paid in acquisition
Value of Ferns to Plants = $73,500 - $72,000
Value of Ferns to Plants = $1,500

Therefore, the answer is D) $73,500.

Ferns and Plants Are All-Equity Firms