Question

Consider the following scenario. American Airlines is considering purchasing Sun Country Airlines. Sun Country has indicated they are willing to sell the organization for a discounted premium amount.After months of discussion, the discounted premium amount has ranged from eight to twenty-two percent. Two weeks ago, American Airlines agreed to purchase Sun Country Airlines for the discounted premium amount of eighteen percent. Currently, Sun Country Airline’s stock price is $12, and they have 12,000,000 shares of outstanding stock.

For the record, American Airline’s stock is $42, and they have 15,000,000 shares of outstanding stock.

Based on the data provided, what is the amount American will buy Sun Country for? Show the

calculations,

Answer 1

The amount at which American will buy Sun Country = $169920000

Calculation :-

Step 1 - Calculate the total Market value of Sun Country :-

Market value of Sun Country = $12 per Share x 12,000,000 shares outstanding

Market value of Sun Country = $144000000

Step 2 - Calculate Discount Premium :-

Discounted Premium = $144000000 x 18%

Discounted Premium = $25920000

Step 3 - Calculate The amount at which American will buy Sun Country :-

The amount at which American will buy Sun Country = total Market value of Sun Country + Discounted Premium

The amount at which American will buy Sun Country = $144000000 + $25920000

The amount at which American will buy Sun Country = $169920000