Firm A has a value of $100 million and Firm B has a value of $70 million. Merging the two would enable cost savings with a present value of $20 million. Firm A purchases Firm B for $75 million. What is the gain from this merger?
A)$30 million
B)$20 million
C)$15 million
D)$75 million

Question

Quizplus · Accepted Answer

The gain from this merger can be calculated as the total value of the merged firms minus the purchase price minus the present value of cost savings. 
Total value of merged firms = $100 million + $70 million = $170 million 
Present value of cost savings = $20 million 
Purchase price = $75 million 
Gain from merger = $170 million - $75 million - $20 million = $75 million 
Therefore, the correct answer is B) $20 million.

Firm a Has a Value of $100 Million and Firm