- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 11. Intercorporate Investments
- Subject 5. Business Combinations
CFA Practice Question
On March 31, Jumbo purchases 100% of Larz for $7,500,000 cash and 2,200,000 shares of Jumbo voting common stock (par value of $1). Jumbo's stock had a market value on March 31 of $40. Jumbo got 12,000,000 shares of Larz's voting common stock (par value $4) having a market value of $50 per share. Jumbo incurs $5,000,000 in direct combination costs and $3,500,000 in stock issuance costs. What is Jumbo's COST for this acquisition?
B. $99,000,000.
C. $104,000,000.
A. $95,500,000.
B. $99,000,000.
C. $104,000,000.
Correct Answer: C
FMV of Stock Issued (2,200,000 x $40): 88,000,000.
Direct Combination Costs: 5,000,000.
Stock issuance costs: 3,500,000
Cost of Investment in Larz: 104,000,000.
Cash: 7,500,000.
FMV of Stock Issued (2,200,000 x $40): 88,000,000.
Direct Combination Costs: 5,000,000.
Stock issuance costs: 3,500,000
Cost of Investment in Larz: 104,000,000.
User Contributed Comments 6
| User | Comment |
|---|---|
| ljamieson | what is the point of mentioning par values of shares? |
| CFAnext | well you will be given lots of information you don't need in the exam. |
| MonkeySee | To confuse you.... |
| vi2009 | Cost of acquisition = sum of cash and equivalents paid + fv of other purchase consideration + direct cost of biz combination. |
| Shanax | To confuse you!!! |
| birdperson | ADD it up, ladies and gentlemen! |