What is the actual cost of the acquisition

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Eki, Inc., a producer of table lamps, has a total of 1,500,000 shares outstanding. The current value of the firm is $15 million (no debt). It issues a total of 50,000 2-year warrants to its two top executives with an exercise price of $30. If the risk-free rate is 10% and if the standard deviation of the Eki stock is 50%, compute the value (price) of each warrant if it can only be exercised on the expiration date.

Firm X is being acquired by Firm Y for $35,000 worth of Firm Y stock (valued at the pre-merger current price of Y). Both firms are "all-equity" financed. The incremental value created by the merger is $2,500. Firm X has 2,000 shares of stock outstanding at $16 per share. Firm Y has 1,200 shares of stock outstanding at a price of $40 per share. What is the actual cost of the acquisition to Firm Y using company stock? Why is the actual cost less than $35,000?

Reference no: EM13799651

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