Acquiring Corp agrees to buy 100% of the outstanding shares of Target Corp in a share for share exchange. How would Acquiring Corp determine how many new share of its stock it would have to issue?
A) Multiply the purchase price premium paid for Target's stock by the number of shares of target stock outstanding.
B) Multiply the share exchange ratio by the number of Acquirer shares outstanding.
C) Add the number of Acquirer and Target shares outstanding
D) Multiply the share exchange ratio by the number of Target shares outstanding.
E) Divide the share exchange ratio by the purchase price premium

Question

Quizplus · Accepted Answer

The share exchange ratio determines how many shares of the acquiring company will be exchanged for each share of the target company. Therefore, multiplying the share exchange ratio by the number of outstanding Target shares will give the total number of Acquirer shares needed to complete the transaction.

Acquiring Corp Agrees to Buy 100% of the Outstanding Shares