If an acquiring company is willing to pay $20 per share for a target's stock, and its own stock is selling for $10, which of the following is not a reasonable payment for 100 shares of the target?
A)$2000, all cash
B)$1000 cash and 100 shares of acquiring company's stock
C)200 shares of acquiring company's stock
D)$1000 in bonds and 200 shares of the acquiring company's stock

Question

Quizplus · Accepted Answer

Option A is a reasonable payment because the acquiring company can pay all cash. Option B is also reasonable because the acquiring company can pay $1000 cash and issue 100 shares of its own stock, which is valued at $10 per share. Option C is reasonable because the acquiring company can issue 200 shares of its own stock, which is valued at $10 per share. However, option D is not reasonable because the acquiring company is offering $1000 in bonds, which may not be desirable to the target company, along with 200 shares of its own stock, which is valued at $2000. The acquiring company would be essentially be paying $3000 for the target's stock, which is higher than the $2000 offer price.

If an Acquiring Company Is Willing to Pay $20 Per