Consider the following premerger information about a bidding firm (Firm B)and a target firm (Firm T).Assume that neither firm has any debt outstanding. Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $2,500.What is the NPV of the merger assuming that Firm T is willing to be acquired for $28 per share in cash?
A)$100
B)$400
C)$1,800
D)$2,200
E)$2,600

Question

Consider the following premerger information about a bidding firm (Firm B)and a target firm (Firm T).Assume that neither firm has any debt outstanding.  Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $2,500.What is the NPV of the merger assuming that Firm T is willing to be acquired for $28 per share in cash?
A)$100 
B)$400 
C)$1,800 
D)$2,200 
E)$2,600

Quizplus · Accepted Answer

The NPV of the merger is the market value of the target firm, plus the value of the synergy, minus the acquisition costs, so:NPV = 1,200 ($26) + $2,500 - 1,200($28) = $100

Consider the Following Premerger Information About a Bidding Firm (Firm