Question

Alto and Solo are all-equity firms. Alto has 2,400 shares outstanding at a market price of $24 a share. Solo has 4,000 shares outstanding at a price of $17 a share. Solo is acquiring Alto for $63,000 in cash. The incremental value of the acquisition is $5,500. A) What is the net present value of acquiring Alto to Solo

Answer 1

Answer:

$100

Explanation:

Alto's share value =  (2,400 × $24) = $57,600

Alto's total value = Share value + Incremental value of acquisition = $57,600 + $5,500 = $63,100

Net present value (NPV) = Alto's total value - Cost of acquisition =  $63,100 - $63,000 = $100

Therefore, the net present value of acquiring Alto to Solo is $100.