The following data on a merger are given: $\begin{array} { l c l l }
& \text { Firm A } & \text { Firm B}&\text { Firm AB } \
\text { Price per share } & \$ 100 & \$ 10 & \
\text { Total eamings } & \$ 500 & \$ 300 & \
\text { Shares outstanding } & 100 & 40 & \
\text { Total value } & \$ 10,000 & \$ 400 & \$ 11,000
\end{array}$ Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock.Calculate the NPV of the merger.
A)$200
B)$400
C)$600
D)$150

Question

The following data on a merger are given: $\begin{array} { l c l l } 
& \text { Firm A } &  \text { Firm B}&\text {  Firm AB  } \
\text { Price per share } & \$ 100 & \$ 10 & \
\text { Total eamings } & \$ 500 & \$ 300 & \
\text { Shares outstanding } & 100 & 40 & \
\text { Total value } & \$ 10,000 & \$ 400 & \$ 11,000
\end{array}$ Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock.Calculate the NPV of the merger.
A)$200
B)$400
C)$600
D)$150

Quizplus · Accepted Answer

The NPV of the merger is the difference between the value of the combined firm and the cost of acquiring Firm B. The value of the combined firm is $11,000, and the cost of acquiring Firm B is $20 per share * 40 shares = $800. Therefore, the NPV of the merger is $11,000 - $800 = $200.

The Following Data on a Merger Are Given Firm a Has Proposed to Acquire Firm B at a l