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

Dog Treats has 6,500 shares of stock outstanding at a market price per share of $11. FIDO has 15,000 shares outstanding that sell 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 FIDO acquires 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

Expert Solution

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.

jeff jeffy answered 1 year ago

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