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 cost of this merger?
A)$30 million
B)$20 million
C)$5 million
D)$10 million

Question

Quizplus · Accepted Answer

The cost of the merger is the amount that Firm A pays to acquire Firm B, which is $75 million. While there are cost savings with a present value of $20 million, this is not directly relevant to the cost of the merger. Therefore, the correct answer is C, $5 million.

Firm a Has a Value of $100 Million and Firm