Value impact of acquisition announcement

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Reference no: EM133116779

On Monday 2 Aug 2021, Afterpay and Square announced that Square has agreed to acquire all the issued shares in Afterpay and announced the acquisition agreement. Afterpay [ASX:APT] is a public company with stocks listed on the Australian Securities Exchange. You are provided with the following information about Afterpay and ASX200 index (a proxy for the market portfolio). Assume the daily risk-free rate is 0 and the CAPM holds.

Date

Afterpay

ASX200

Closing price, Friday 30 July 2021

$96.99

7392.62

Closing price, Monday 2 August 2021

$114.8

7491.45

Number of outstanding shares

290.3 million shares

 

Stock beta

1.76

1

Required: [Instruction: For a and b, show your work. Do not round intermediate answers and round your final answers to two decimal places, e.g., 1.01%, $0.01 million. For c, no calculation is required.]

  1. Use the CAPM to calculate Afterpay's abnormal return on 2 Aug 2021.
  2. What's the value impact of this acquisition announcement on Afterpay's shareholder wealth on the announcement day? 
  3. Using market efficiency theory, in a couple of sentences to discuss how information about company news is translated into stock prices.

Reference no: EM133116779

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