What is the premium paid (%) for a company with a post-acquisition share price of $90 and a pre-acquisition share price of $50?

What is the premium paid (%) for a company with a post-acquisition share price of $90 and a pre-acquisition share price of $50?

• A. 50%
• B. 60%
• C. 70%
• D. 80%

Answer: (D)

To determine the premium paid for a company in an acquisition, you can use the formula for calculating the premium percentage, which is given by: \[ \text{Premium Percentage} = \frac{\text{Post-Acquisition Share Price} - \text{Pre-Acquisition Share Price}}{\text{Pre-Acquisition Share Price}} \times 100 \] In this scenario, the post-acquisition share price is $90, and the pre-acquisition share price is $50. Substituting the values into the formula gives: \[ \text{Premium Percentage} = \frac{90 - 50}{50} \times 100 = \frac{40}{50} \times 100 = 0.8 \times 100 = 80\% \] Thus, the premium paid for the company in this acquisition is 80%. This correctly reflects the increase in value attributed to the acquisition, showing how the acquiring company values the target's shares at a significant markup compared to the market price prior to the acquisition.

To determine the premium paid for a company in an acquisition, you can use the formula for calculating the premium percentage, which is given by:

[

\text{Premium Percentage} = \frac{\text{Post-Acquisition Share Price} - \text{Pre-Acquisition Share Price}}{\text{Pre-Acquisition Share Price}} \times 100

]

In this scenario, the post-acquisition share price is $90, and the pre-acquisition share price is $50. Substituting the values into the formula gives:

[

\text{Premium Percentage} = \frac{90 - 50}{50} \times 100 = \frac{40}{50} \times 100 = 0.8 \times 100 = 80%

]

Thus, the premium paid for the company in this acquisition is 80%. This correctly reflects the increase in value attributed to the acquisition, showing how the acquiring company values the target's shares at a significant markup compared to the market price prior to the acquisition.