Mayo Corporation is currently trading at $30 per share.There are 10 million shares outstanding and the company has no debt.You believe that the value of the company would increase by 50% if the management were replaced.How much would you need to offer in total to acquire 50% of Mayo's shares?

Question

Quizplus · Accepted Answer

To acquire 50% of Mayo's shares, we need to buy 5 million shares. If the value of the company would increase by 50% after management is replaced, the new value of the company would be $30 * 1.5 = $45 per share.

So, the total value of 5 million shares would be $45 * 5 million = $225 million. Therefore, we would need to offer $225 million to acquire 50% of Mayo's shares. However, the question is asking for the total amount (not just our share), so we need to double this amount, which gives us $450 million.

Therefore, the best choice is B) $150 million.

Mayo Corporation Is Currently Trading at $30 Per Share