Question

The Floral Shoppe and Maggie's Flowers are all-equity firms. The Floral Shoppe has 1,850 shares outstanding at a market price of $16 a share. Maggie's Flowers has 2,650 shares outstanding at a price of $25 a share. Maggie's Flowers is acquiring The Floral Shoppe for $30,000 in cash. The incremental value of the acquisition is $3,300. What is the net present value of acquiring The Floral Shoppe to Maggie's Flowers?

Answer 1

The net present value of acquiring The Floral Shoppe to Maggie's Flowers is $2,900

Step-by-step explanation:

According to the given data we have the following:

Acquisition Value=$30,000

incremental value of the acquisition= $3,300

Total share value of Floral shoppe= 1,850×$16=$29,600

To calculate the net present value of acquiring The Floral Shoppe to Maggie's Flowers we would have to use the following formula:

Net present value=incremental value- Additional cost paid

Additional cost paid=$30,000-$29,600=$400

Therefore, Net present value= $3,300-$400

Net present value=$2,900

The net present value of acquiring The Floral Shoppe to Maggie's Flowers is $2,900