Western has a market value of $950 with 50 shares outstanding and a price per share of $19.Eastern has a market value of $3,000 with 120 shares outstanding and a price per share of $25.Eastern is acquiring Western by exchanging 40 of its shares for all 50 of Western's shares.What is the cost of the merger to Eastern's stockholders if the merger creates $200 of synergy?

Question

Quizplus · Accepted Answer

The cost of the merger to Eastern's stockholders is calculated by determining the value of the shares given up in the exchange minus the synergy created. Eastern gives up 40 shares valued at $25 each, totaling $1,000. The synergy created is $200, so the net cost is $1,000 - $200 = $800. However, the value of Western is $950, so the cost to Eastern's stockholders is $950 - $800 = $150. The correct calculation should be $1,037.50, considering the value of shares exchanged and the synergy.

Western Has a Market Value of $950 with 50 Shares