Answer:
option (b) $34,789
Explanation:
Data provided in the question:
Worth of Firm A = $35,000
Incremental value of the acquisition = $2,500
Number of shares of Firm A outstanding = 2,000
Price of Firm A shares = $16 per share
Number of shares of Firm B outstanding = 1,200
Price of Firm B shares = $40 per share
Now,
Number of shares issued = Worth of Firm A ÷ Price per share of Firm B
= $35,000 ÷ $40
= 875 shares
Value per share after merger
= [ (1,200 × $40) + ( 2,000 × $16 ) + $2,500 ] ÷ [ 1,200 + 875 ]
= $82,500 ÷ 2,075
= $39.759
Therefore,
The Actual cost of acquisition
= Number of shares issued × Value per share after merger
= 875 × $39.7588
= $34788.95 ≈ $34,789
Hence,
The answer is option (b) $34,789
