Solved: What is the actual cost of the acquisition of firm, Financial Accounting

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What is the actual cost of the acquisition of firm

Response to the following problem:

Firm X is being acquired by Firm Y for $45,000 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 $3,500. Firm X has 3,000 shares of stock outstanding at $15 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?

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Financial Accounting: What is the actual cost of the acquisition of firm

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