Firm A is acquiring Firm T for $22,500 in cash.Firm A has 2,300 shares of stock outstanding at a market value of $26 a share.Firm T has 1,200 shares of stock outstanding at a market price of $17 a share.Neither firm has any debt.The net present value of the acquisition is $1,900.What is the price per share of Firm A after the acquisition?

Question

Quizplus · Accepted Answer

The total cost of the acquisition is $22,500, which is the sum of the cash paid for Firm T and the value of Firm A's stock used in the acquisition:

$22,500 = (1,200 shares of Firm T) x ($17/share) + (2,300 shares of Firm A) x (price/share)

Solving for the price per share of Firm A, we get:

price/share = ($22,500 - 1,200 x $17) / 2,300
price/share = ($22,500 - $20,400) / 2,300
price/share = $2,100 / 2,300
price/share = $0.913

Therefore, the price per share of Firm A after the acquisition is:

$26 + $0.913 = $26.913, or rounded to the nearest cent, $26.83.

Therefore, the best choice is (C).

Firm a Is Acquiring Firm T for $22,500 in Cash