Companies A and B are valued as follows: $\begin{array} { l c l }
& \mathrm { A } & \mathrm { B } \
\# \text { of shares } & 2000 & 1000 \
\text { Earnings per share } & \$ 10 & \$ 10 \
\text { Share price } & \$ 100 & \$ 50
\end{array}$ Company A now acquires B by offering one (new) share of A for every two shares of B (that is, after the merger, there are 2,500 shares of A outstanding).Suppose that the merger really does increase the value of the combined firms by $20,000..What is the cost of the merger?
A)zero
B)$2,000
C)$8,000
D)$4,000

Question

Companies A and B are valued as follows: $\begin{array} { l c l } 
& \mathrm { A } & \mathrm { B } \
\# \text { of shares } & 2000 & 1000 \
\text { Earnings per share } & \$ 10 & \$ 10 \
\text { Share price } & \$ 100 & \$ 50
\end{array}$ Company A now acquires B by offering one (new) share of A for every two shares of B (that is, after the merger, there are 2,500 shares of A outstanding).Suppose that the merger really does increase the value of the combined firms by $20,000..What is the cost of the merger?
A)zero
B)$2,000
C)$8,000
D)$4,000

Quizplus · Accepted Answer

The Answer of Companies A and B are valued as follows: $\begin{array} { l c l } 
& \mathrm { A } & \mathrm { B } \
\# \text { of shares } & 2000 & 1000 \
\text { Earnings per share } & \$ 10 & \$ 10 \
\text { Share price } & \$ 100 & \$ 50
\end{array}$ Company A now acquires B by offering one (new) share of A for every two shares of B (that is, after the merger, there are 2,500 shares of A outstanding).Suppose that the merger really does increase the value of the combined firms by $20,000..What is the cost of the merger?
A)zero
B)$2,000
C)$8,000
D)$4,000

Companies a and B Are Valued as Follows Company a Now Acquires B by Offering One (New) Share