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31 May, 10:44

George's Equipment is planning on merging with Nelson Machinery. George's will pay Nelson's shareholders the current value of their stock in shares of George's Equipment. George's currently has 4,600 shares of stock outstanding at a market price of $31 a share. Nelson's has 1,600 shares outstanding at a price of $38 a share. What is the value per share of the merged firm assuming there is no synergy

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  1. 31 May, 10:54
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    31 per share

    Explanation:

    The computation of value per share is shown below:-

    Share exchange ratio = MPS of Nelson : MPS of George

    = $38 : $31

    = 1.2258

    MPS a + b = MVa + MVb : Number of shares a + Number of shares b * SER

    = (1600 * $38) + (4,600 * $31) : 4,600 + (1,600 * 1.2258)

    = $60,800 + $142,600 : 4600 + 1,961

    = $203,400 : 6,561

    = 31 per share

    Therefore for computing the value per share we simply applied the above formula.
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