Firm A is being acquired by Firm B for $24,000 worth of Firm B stock. The incremental value of the acquisition is $3,500. Firm A has 1,500 shares of stock outstanding at a price of $15 a share. Firm B has 1,200 shares of stock outstanding at a price of $30 a share. What is the value per share of Firm B after the acquisition?
A) $17.50
B) $24.00
C) $30.00
D) $31.00
E) $35.00

Question

Quizplus · Accepted Answer

The total value after the acquisition is the sum of the value of Firm B, the value of Firm A, and the incremental value. Firm B's initial value is 1,200 shares * $30 = $36,000. Firm A's value is 1,500 shares * $15 = $22,500. The total value after acquisition is $36,000 + $22,500 + $3,500 = $62,000. The total number of shares after the acquisition is 1,200 + ($24,000 / $30) = 2,000 shares. The value per share is $62,000 / 2,000 = $31.00.

Firm a Is Being Acquired by Firm B for $24,000