Question

Katie Homes and Garden Co. has 13,500,000 shares outstanding. The stock is currently selling at $56 per share. If an unfriendly outside group acquired 15 percent of the shares, existing stockholders will be able to buy new shares at 25 percent below the currently existing stock price.

a. How many shares must the unfriendly outside group acquire for the poison pill to go into effect? (Do not round intermediate calculations.)
  

b. What will be the new purchase price for the existing stockholders? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
  

Answer 1

Solution:
a.	Number of shares      2,025,000
Working Notes:
	Unfriendly outside group acquire for the poison pill to go into effect when unfriendly outside group acquired 15% of number of shares the existing shareholders get right to buy new shares 25% below current price.
	Unfriendly outside group acquire for the poison pill to go into effect
	Number of shares
	= No of shares outstanding x 15%
	=13,500,000 x 15%
	=2,025,000 shares
b.	New purchase price     $42.00
Working Notes:
	new purchase price for the existing stockholders
	= 25% below current price	poison pill
	=Current price x (1-0.25)
	=$56 x (1-0.25)
	=$42
Please feel free to ask if anything about above solution in comment section of the question.