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In: Accounting

The Floral Shoppe and Maggie's Flowers are all-equity firms. The Floral Shoppe has 1,850 shares outstanding...

The Floral Shoppe and Maggie's Flowers are all-equity firms. The Floral Shoppe has 1,850 shares outstanding at a market price of $23 a share. Maggie's Flowers has 2,850 shares outstanding at a price of $32 a share. Maggie's Flowers is acquiring The Floral Shoppe for $30,000 in cash. The incremental value of the acquisition is $3,100. What is the net present value of acquiring The Floral Shoppe to Maggie's Flowers?

$17,650

$16,650

$14,650

$15,650

$18,650

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Expert Solution

Answer:
Given data,
Value of the acquisition is $30,000
Incremental value of the acquisition is $3,100
Value of the Shares   = Shares outstanding x Market price
                                           =    1,850 Shares   x $23
                                           =    $42,550
Cost Saved on Acquisition     = $42,500 (-) $30,000
                                                          =   $12,550
Net present value of acquisition
           = Incremental value + Cost Saved on Acquisition
            =     $3,100 + $12,500
            = $15,650
Net present value of acquisition   = $15,650
Option (D) is correct - $15,650

ekkarill92 answered 1 year ago
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