The Prada Corporation is considering a merger with the Stone Company, which has 500,000 outstanding shares selling for $30. An investment banker has advised that to succeed in its merger, Prada Corp. would have to offer $45 per share for Stone's stock. Currently, Prada Corp. stock is selling for $25. How many shares of Prada Corp. stock would have to be exchanged to acquire all of Stone Company's stock?
A) 266,667
B) 600,000
C) 900,000
D) 20,000

Question

Quizplus · Accepted Answer

To acquire all of Stone Company's stock, Prada Corp. needs to offer $45 per share. With 500,000 shares, the total cost is 500,000 * $45 = $22,500,000. At Prada's current stock price of $25, the number of shares needed is $22,500,000 / $25 = 900,000 shares.

The Prada Corporation Is Considering a Merger with the Stone