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Dog Treats has 6,500 shares of stock outstanding at a market price per share of $11....

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Finance

Dog Treats has 6,500 shares of stock outstanding at a marketprice per share of $11. FIDO has 15,000 shares outstanding thatsell for $18 a share. By merging, $9,600 of synergy can be created.What would be the post-merger value of the combined firm if FIDOacquires Dog Treats in a stock acquisition valued at $75,000?

a.$276,100

b.$351,100

c.$156,100

d.$266,500

e.$341,500

Answer & Explanation Solved by verified expert
4.1 Ratings (769 Votes)

Given that the Dog Treats has 6,500 shares outstanding at $11 per share. FIDO acquires Dog Treats at $75,000.

The value of Dog Treats                 =6,500*11 = $71,500.

The premium paid by FIDO           = $75,000-71500 = $3500.

Synergy for FIDO through merger = $9,600.

Pre- merger value of FIDO            = 15,000 shares at $18 per share

                                                                =$270,000.

Post-merger value                           = Pre-merger value + Excess of synergy over premium

                                                                =$270,000+(9,600-3,500)

                                                                =$276,100.

So, the answer is (a) $276,100.
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Transcribed Image Text

Dog Treats has 6,500 shares of stock outstanding at a marketprice per share of $11. FIDO has 15,000 shares outstanding thatsell for $18 a share. By merging, $9,600 of synergy can be created.What would be the post-merger value of the combined firm if FIDOacquires Dog Treats in a stock acquisition valued at $75,000?a.$276,100b.$351,100c.$156,100d.$266,500e.$341,500

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