Question

Boston Company is planning on merging with Marrymount Company. Boston currently has 400,000 shares of stock outstanding at a market price of $28 a share. Marrymount has 175,000 shares outstanding at a price of $31 a share. The merger will create $1,050,000 of synergy. How many of its shares should Boston offer in exchange for all of Marrymount s share if it wants its acquisition cost to be $5,700,000?

190,397

182,766

175,508

168,412

197,644

Answer 1

market value of B company = 400000 * 28 = 11200000

market value of M compnay = 175000 * 31 = 5425000

merged firm value . = market value of A + market value of B + sunergy value

= 11200000 + 5424000 + 1050000

= 17675000

acquisition cost = 5700000

alpha * merged firm value = 17675000

alpha = number of new shares issued to M/(number of old shares of firm B + number of new shares issued to M)

= X(X+400000) = 5700000/17675000 = 57/176.75

=>

176.75X = 57*X + 400000*57

=>

X = 190397 ......ans

=>