Firm A is being acquired by Firm B for $35,000 worth of Firm B stock. The incremental value of the acquisition is $2,500. Firm A has 2,000 shares of stock outstanding at a price of $16 a share. Firm B has 1,200 shares of stock outstanding at a price of $40 a share. What is the actual cost of the acquisition using company stock ? a) $34,750 b) $34,789 c) $35,000 d) $35,289 e) $35,500

To calculate the actual cost of the acquisition using company stock, we have to determine how many shares of Firm B's stock are required to match the $35,000 value that Firm A is being acquired for.

Since Firm B's stock is priced at $40 a share, we divide the total acquisition price by the price per share of Firm B's stock to find out the number of shares Firm B needs to give to Firm A's shareholders:

Number of shares = Total acquisition value / Price per share of Firm B Number of shares = $35,000 / $40 Number of shares = 875 shares of Firm B's stock

However, Firm A also has an incremental value from the acquisition of $2,500. This value should be treated as an additional cost to Firm B. This means we need to adjust the total cost to include this incremental value:

Total cost of acquisition (including incremental value) = Total acquisition value + Incremental value Total cost of acquisition (including incremental value) = $35,000 + $2,500 Total cost of acquisition (including incremental value) = $37,500

To find the actual cost per share to Firm B after accounting for the incremental value, we need to divide the total acquisition cost by the number of Firm B shares used for the acquisition:

Actual cost per share = Total cost of acquisition / Number of Firm B shares given Actual cost per share = $37,500 / 875 shares Actual cost per share = $42.857142857... per share

Now that we have the cost per share after including the incremental value, we can calculate the actual cost of the acquisition by multiplying this amount by the number of shares of Firm B's stock that were used in the acquisition:

Actual cost = Actual cost per share * Number of Firm B shares given Actual cost = $42.857142857... * 875 Actual cost = $37,500

However, this is not one of the provided answer choices, indicating there may be an issue with the interpretation of "actual cost." Given the context, the actual cost referred to in the question most likely meant without additional incremental value, which we initially calculated as $35,000 worth of Firm B stock. Therefore, the correct answer would be:

c) $35,000