Firms A and B are each worth $50 million, but generate a $20 million gain when merged.If the cost of the merger was $5 million, how much did Firm A pay for Firm B?
A)$50 million
B)$55 million
C)$60 million
D)$65 million

Question

Quizplus · Accepted Answer

Firm A and B together are worth $100 million ($50 million each). The merger generates an additional $20 million, making the total value $120 million. After subtracting the $5 million cost of the merger, the net value is $115 million. Firm A pays $55 million for Firm B to account for the $50 million value of Firm B plus the $5 million merger cost.

Firms a and B Are Each Worth $50 Million, but Generate