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    Firm A is acquiring Firm B for $40,000 in cash.

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    16) Firm A is acquiring Firm B for $40,000 in cash. Firm A has 2,500 shares of stock outstanding at a market value of $18 a share. Firm B has 1,500 shares of stock outstanding at a market price of $25 a share. Neither firm has any debt. The net present value of the acquisition is $2,500. What is the value of Firm A after the acquisition?

    17) 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?

    18) Firm A is planning on merging with Firm B. Firm A will pay Firm B's stockholders the current value of their stock in shares of Firm A. Firm A currently has 2,300 shares of stock outstanding at a market price of $20 a share. Firm B has 1,800 shares outstanding at a price of $15 a share. What is the value per share of the merged firm?

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    Solution Preview

    16) Firm A is acquiring Firm B for $40,000 in cash. Firm A has 2,500 shares of stock outstanding at a market value of $18 a share. Firm B has 1,500 shares of stock outstanding at a market price of $25 a share. Neither firm has any debt. The net present value of the acquisition is $2,500. What is the value of Firm A after the acquisition?

    The net present value of the acquisition is the difference between the increase in value of the new firm A and the price that firm A is paying to acquire firm B.
    It is also regarded as the increase in the total shareholder's value.

    So, we can find the increase of share price for Firm A as follows:-

    $2,500/2,500 shares = $1/share.

    Therefore, the price per share of Firm A = $18 + $1 = $19/share after the acquisition.

    Note: the shares of firm B are irrelevant for calculation because shareholders of Firm B were paid off with the $40,000 in cash.

    17) Firm A ...

    Solution Summary

    This solution is comprised of a detailed explanation to answer what is the value of Firm A after the acquisition, what is the value per share of Firm B after the acquisition, and what is the value per share of the merged firm.

    $2.19

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