Question

Cassandra's Boutique has 2,100 shares outstanding at a market price per share of $26. Sally's has 3,000 shares outstanding at a market price of $41 a share. Neither firm has any debt. Sally's is acquiring Cassandra's for $58,000 in cash. The incremental value of the acquisition is $2,000. What is the value of Cassandra's Boutique to Sally's?

Answer 1

Answer:

$56,600

Explanation:

Given that,

Cassandra's Boutique:

2,100 shares outstanding at a market price per share of $26.

Sally's:

3,000 shares outstanding at a market price of $41 a share.

Acquiring Cassandra's boutique for cash = $58,000

Incremental value of the acquisition = $2,000

We can get the value of Cassandra's Boutique to Sally's by adding the incremental value of the acquisition to the market value of the shares of Cassandra's Boutique.

Firstly, we are calculating the market value of Cassandra's Boutique:

= Outstanding shares × Market price per share

= 2,100 × $26

= $54,600

Therefore, the value of Cassandra's Boutique to Sally's is as follows:

= market value of Cassandra's Boutique + Incremental value of the acquisition

= $54,600 + $2,000

= $56,600