Question

The Floral Shoppe and Maggie's Flowers are all-equity firms. The Floral Shoppe has 1,800 shares outstanding at a market price of $21 a share. Maggie's Flowers has 2,300 shares outstanding at a price of $32 a share. Maggie's Flowers is acquiring The Floral Shoppe for $37,000 in cash. The incremental value of the acquisition is $2,800. What is the net present value of acquiring The Floral Shoppe to Maggie's Flowers

Answer 1

the net present value is $3,600

Step-by-step explanation:

The computation of the net present value is shown below:

Net present value = Incremental value - additional cost incurred

where,

Incremental value is $2,800

And, the additional cost incurred is

= $37,000 - 1,800 × $21

= $37,000 - $37,800

= -$800

So, the net present value is

= $2,800 - (-$800)

= $3,600

Hence, the net present value is $3,600