When Ginormous Oil agreed to purchase all of the outstanding shares of Slick com

Question

When Ginormous Oil agreed to purchase all of the outstanding shares of Slick company it includes the value of the equity acquired and the liabilities that accompany the equity. Hence, the cost of the acquisition will be:

Rate is $50 per share

Number of outstanding shares is 80 million

Book value of liabilities is $2.50 billion

$50 * 80 million = 4 billion is the cost of shares.

Adding the liability with the cost of shares; 4 billion + 2.50 billion = $6.50 billion

Therefore, the total cost of acquisition will be $6.50 billion.

Explanation / Answer

VI. Merger (6 points) Ginormous Oil entered into an agreement to purchase all of the outstanding shares of Slick Company for $50 per share. The number of outstanding shares at the time of the announcement was 80 million. The book value of liabilities on the balance sheet of Slick Co. was $2.50 billion. What was the cost of this acquisition to the shareholders of Ginormous Oil?

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