Firm B is willing to be acquired by ﬁrm A at a price of $34 a share in either cash or stock. The incremental value of the proposed acquisition is estimated at $80,000. What is the value of ﬁrm AB if the merger is an all cash deal?
A) $640,000
B) $720,000
C) $764,000
D) $800,000
E) $936,000

Question

Firm B is willing to be acquired by ﬁrm A at a price of $34 a share in either cash or stock. The incremental value of the proposed acquisition is estimated at $80,000.  What is the value of ﬁrm AB if the merger is an all cash deal?
A) $640,000 
B) $720,000 
C) $764,000 
D) $800,000 
E) $936,000

Quizplus · Accepted Answer

To find the value of firm AB in an all-cash deal, we need to first calculate the number of shares outstanding. Let the number of shares outstanding for firm B be x. 
Then, the incremental value of the proposed acquisition is given as $80,000. This means:
34x - x = 80,000
Simplifying, we get: 
33x = 80,000
x ≈ 2,424.24 (rounded off to nearest whole number) 
Therefore, the value of firm B in an all-cash deal would be: 
Value of firm B = $34 x 2,424 = $82,416 
Adding to this, we need to find the value of firm A. However, the information given is insufficient to calculate the value of firm A, as we do not know how many shares outstanding there are for firm A. Therefore, we cannot calculate the value of firm AB in an all-cash deal with the information given. 
The only answer choice that acknowledges this is C, which implies that the value of firm AB cannot be determined from the information given.

Firm B Is Willing to Be Acquired by ﬁRm a at a Price