Question

ABC and XYZ are all-equity firms. ABC has 1,750 shares outstanding at a market price of $20 a share. XYZ has 2,500 shares outstanding at a price of $28 a share. XYZ is acquiring ABC for $36,000 in cash. The incremental value of the acquisition is $3,000. What is the net present value of acquiring ABC to XYZ?

Answer 1

$2,000

Step-by-step explanation:

The computation of the net present value is shown below:

= Number of outstanding shares × market price per share + incremental value of the acquisition - acquired value in cash

= 1,750 shares × $20 + $3,000 - $36,000

= $35,000 + $3,000 - $36,000

= $2,000

All other information which is given is not relevant. Hence, ignored it