An acquiring company is considering a takeover of a target company.The acquiring company has 10 million shares outstanding with $40 per share.The target company has 5 million shares outstanding which sell for $20 per share.If the acquiring company estimates that merger gains will be $20 million, determine what the highest price will be paid per share for the target.
A)$24
B)$26
C)$28
D)$30

Question

Quizplus · Accepted Answer

The highest price per share for the target can be calculated by distributing the merger gains ($20 million) over the target company's shares (5 million shares), which equals $4 per share. Adding this to the target's current share price ($20) gives the highest price the acquiring company would be willing to pay: $20 + $4 = $24 per share.

An Acquiring Company Is Considering a Takeover of a Target