Question

Merger Gains. Acquiring Corp. is considering a takeover of Takeover Target Inc. Acquiring has 10 million shares outstanding, which sell for $40 each. Takeover Target has 5 million shares outstanding, which sell for $20 each. If the merger gains are estimated at $25 million, what is the highest price per share that Acquiring should be willing to pay to Takeover Target shareholders

Answer 1

Answer: $25 per share

Step-by-step explanation:

Find the extra amount that would have to be paid on Takeover Target stock to enable a gain of $25 million.

= 25,000,000/ 5,000,000 shares

= $5 per share

Takeover Target is currently selling at $20 so the price it can be sold at for a gain of $25 million is;

= 20 + 5

= $25 per share