Question

Thomson Inc is considering acquiring Stevenson Corp under the following conditions:

• the FMV (Fair market value) of Stevenson’s fixed assets is estimated to be 1.5 times that of its book value
• the total offered price for all of Stevenson’s equity is to be $10,530
• Thomson is to assume all of Stevenson’s liabilities         
• the total financing of the acquisition is to be leveraged (borrowing)

The following are the balance sheets of each company before the acquisition:

Thomson Inc (Shortly before acquisition)

Current assets	$1,000	Current liabilities	$750
Gross fixed assets	$50,000	Long term debt	$12,250
Cum. depreciation	$(20,000)	Common equity	$18,000
Net fixed assets	$30,000	Total equity and
Total assets	$31,000	total liabilities	$31,000

Stevenson Corp (Shortly before acquisition)

Current assets	$500	Current liabilities	$400
Gross fixed assets	$25,000	Long term debt	$7,000
Cum. depreciation	$(10,000)	Common equity	$8,100
Net fixed assets	$15,000	Total equity and
Total assets	$15,500	total liabilities	$15,500

Total cost of acquisition to Thomson is:

The value of the goodwill is:

Thomson’s long term debt after the transaction is:

Answer 1