Lefty's and Sonny's Are All-Equity fiRms

question 196

Multiple Choice

Lefty's and Sonny's are all-equity firms. Lefty's has 2,400 shares outstanding at a market price of $26.50 a share. Sonny's has 3,500 shares outstanding at a price of $34 a share. Sonny's is
Acquiring Lefty's for $67,500 in cash. The incremental value of the acquisition is $5,200. What is the
Net present value of acquiring Lefty's to Sonny's?

• A) $1,300
• B) $3,079
• C) $3,900
• D) $4,921
• E) $5,200

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Definitions:

Corresponding Cost

Corresponding cost refers to the specific expenses directly associated with the production of a good or service, similar to direct costs.

Discount Period

The time frame in which a payment can be made at a discounted rate from the total amount owed.

Perpetual

An inventory system where updates are made continuously to the inventory records, reflecting each sale or purchase.

Periodic Inventory System

An inventory system in which the inventory count and the cost of goods sold calculation are performed at set intervals, typically at the end of an accounting period.