Question

Boston Company is planning on merging with Marrymount Company. Boston currently has 400,000 shares of stock...

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

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

=>

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