Item 12 Firm X is being acquired by Firm Y for $35,000 cash which is being provided by retained earnings. The synergy of the acquisition is $5,000. Firm X has 2,000 shares of stock outstanding at a price of $16 a share. Firm Y has 10,200 shares of stock outstanding at a price of $46 a share. What is the value of Firm Y after the acquisition

$471,200

Explanation:

Value of firm Y before acquisition = $46 * 10,200 shares

Value of firm Y before acquisition = $469,200

Book value of firm X = $16 * 2,000

Book value of firm X = $32,000

Cash provided to firm X = $35,000

Synergy of the acquisition = $5,000

Value of firm Y after acquisition = $469,200 + ($32,000 - $35,000) + $5,000

Value of firm Y after acquisition = $469,200 - $3,000 + $5,000

Value of firm Y after acquisition = $471,200

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