Question

A firm has 1,000 shareholders. Both you and Ms. Hostile are among them. Ms. Hostile owns 150 shares and is trying to fire the management, so management is offering to buy her out for a $10 a share premium. The current market price per share is $30. What will be the value of each of your shares if Ms. Hostile takes this offer?

Answer 1

$28.24

Step-by-step explanation:

Total value of the firm's equity = 1000 shares * $30

Total value of the firm's equity = $30,000

Amount paid to Ms. Hostile = 150 shares*($30+$10)

Amount paid to Ms. Hostile = 150 shares * $40

Amount paid to Ms. Hostile = $6,000

Value of equity after paying = Total value of the firm's equity - Amount paid to Ms. Hostile

Value of equity after paying = $30,000 - $6,000

Value of equity after paying = $24,000

No. of shares remaining = 1,000 shares - 150 shares

No. of shares remaining = 850 shares

Value of each share = Value of equity after paying/No. of shares remaining

Value of each share = $24,000 / 850 shares

Value of each share = $28.23529

Value of each share = $28.24