Question

Marconi and Nera are all-equity firms. Marconi has 17,500 shares outstanding at a market price of $39.20 a share while Nera has 6,200 shares outstanding at a price of $43.40 a share. Marconi is acquiring Nera for $301,000 in cash. The incremental value of the acquisition is $51,400. What is the net present value of acquiring Nera to Marconi?

		$19,480
		$17,280
		$18,540
		$20,620
		$21,360

Answer 1

Value of Nera = 6200 shares x 43.40 = $ 269,080

Incremental value of acquisition of Nera (Synergy gains) = $ 51,400

Increase in value of Marconi after acquisition of Nera = value of Nera + Synergy gains = 269080 + 51400

Increase in value of Marconi after acquisition of Nera = $ 320,480

Cost of acquisition = $ 301,000

Therefore,  net present value of acquiring Nera to Marconi = increase in value of Marconi - cost of acquisition = 320480 - 301000

Net present value of acquiring Nera to Marconi = $ 19,480

Therefore option 1 is correct.

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