Firm A is acquiring Firm B for $25,000 in cash. Firm A has 2,000 shares of stock outstanding at a market value of $21 a share. Firm B 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 $1,500. What is the price per share of Firm A after the acquisition?

Question

Quizplus · Accepted Answer

The total value of Firm A before the acquisition is 2,000 shares * $21 = $42,000. The cost of acquiring Firm B is $25,000 in cash. The net present value (NPV) of the acquisition is $1,500, which means the value added by the acquisition is $1,500. Therefore, the new total value of Firm A after the acquisition is $42,000 + $1,500 = $43,500. The number of shares remains 2,000. Thus, the price per share after the acquisition is $43,500 / 2,000 = $21.75.

Firm a Is Acquiring Firm B for $25,000 in Cash