[durand]

The business of ramper a sole trader is acquired by a Roseau ltd. The net assets of the business are valued at $167000 but the purchase price of the business is agreed at $137000. Roseau ltd will pay $50000 in cash and issue 60000 shares at $1.

What s the premium per share?

I really don't know how to find the premium.. I divided the 60000 shares by the purchase price and I got 0.4379.but I am still not certain that's the correct answer.. Can I be helped please and shown how it is calculated to get a premium per share?

[ArcSine]

"Premium" unfortunately has different meanings in different contexts. In THIS case, my guess is that they're asking for the excess of a share's selling price over its par value. E.g. if I pay $14 for a share that has a stated $10 par value, the 'premium' in this case is $4.

Check your question's source carefully, but I suspect the 60,000 shares being issued have a $1 par value. If that's the case, let's proceed...

How much is Roseau paying in total for the business? How much of that is coming from immediately-available cash, and hence how much must be raised in the sale of new shares?

If they're selling 60,000 shares, how much must each share be sold for? And finally, if the shares have a par value of $1, what is the excess of this selling price over $1 (i.e. the 'premium')?

[durand]

I still can't find the correct answer.. I do not know how to calculate to get a premium per share was never taught that... different answers:
A)$0.45
B)$0.95
C)$1.78
D)$1.28
Can anyone help me please?

[ArcSine]

Okay, one at a time. How much is Roseau paying for the company?

[durand]

He is paying $137000

[ArcSine]

Right. The question shows that Roseau already has a certain amount available in cash. (How much?) Thus, how much ADDITIONAL cash will Roseau have to raise, by selling shares of stock, in order to have enough to complete the purchase?

[durand]

Okay I believe you had to divide the amount of shares being issued by the net assets of the business.when you do so u get 2.78 then you subtract the $1.00 and then you get the 1.78

[ArcSine]

No, although I see your logic. You're thinking of "premium" as being linked somehow to the appraised value of the net assets.

Let's stick with our step-by-step. So far we know Roseau is paying 137,000 for the biz, and that he already has 50,000 cash on hand to spend. The next two questions are...

How much more cash does he need to make the purchase?

If he's going to raise that additional cash by selling stock, and he's planning on selling 60,000 shares, how much will he have to sell each share for?

[durand]

he need $87000 more cash to make the purchase
so he will have to sell each share for 0.45 so we divide 87000/60000 and we get 1.45 and then we subtract the $1 and have 0.45 left.. so we sell it at a 0.45.so 0.45 x 60000 is 27000.27000+60000=87000

[durand]

Am I correct so the answer is A

[ArcSine]

Yes. To raise the necessary $87,000 Roseau will have to sell the 60,000 shares for $1.45 each. This represents a 45-cents-per-share premium over the stock's $1 par value.