What is the premium paid (%) when a company's post-acquisition share price is $40 and its pre-acquisition share price was $32?

To determine the premium paid in percentage when a company's share price changes before and after an acquisition, you use the formula for calculating the premium percentage. The premium is the difference between the post-acquisition share price and the pre-acquisition share price, divided by the pre-acquisition share price, and then multiplied by 100 to convert it to a percentage.

Here's how to calculate it step-by-step:

1. Find the difference between the post-acquisition price and the pre-acquisition price:

[

40 - 32 = 8

]

2. Divide the difference by the pre-acquisition price:

[

\frac{8}{32} = 0.25

]

3. Multiply by 100 to get the percentage:

[

0.25 \times 100 = 25%

]

Thus, the premium paid is 25%. This is why the answer is correct, as it reflects the significant increase in the share price due to the acquisition, highlighting the value that shareholders are paying above the pre-acquisition price.

Understanding these calculations is crucial in assessing the financial implications of mergers and acquisitions for both the acquiring and target companies. Recognizing the premium