Firm Q Is Being Acquired by Firm S in Exchange

question 61

Multiple Choice

Firm Q is being acquired by Firm S in exchange for shares of Firm S stock. The incremental value of the acquisition is $3,600. Firm Q has 2,400 shares of stock outstanding at a price of $18 a share. Firm S has 3,500 shares of stock outstanding at a price of $27 a share. What is the net present value of the acquisition given that the actual cost of the acquisition using company stock is $41,708?

• A) $1,280
• B) $1,492
• C) $3,807
• D) $4,311
• E) $5,092

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Definitions:

Net Operating Income

The total profit of a business after operating expenses are deducted but before taxes and interest are calculated.

Combined Margin

A measure used in financial analysis that aggregates gross profit, operating margin, and net margin.

Fixed Expenses

Costs that do not change with the volume of production or sales, such as rent, salaries, and insurance.

Combined Turnover

A measure of a company’s ability to use its assets and liabilities effectively to generate sales, combining inventory turnover with accounts receivable turnover.