Assume the following data: $\begin{array}{lccl}
& \text { Firm A } & \text { Firm B } & \text { Firm } \mathrm{AB} \text { (after merger of } \mathrm{A} \text { and } \mathrm{B} \text { ) } \
\text { Market Price per share } & \$ 20 & \$ 10 & \
\text { Number of shares } & 1,000,000 & \$ 200,000 & \
\text { Market value of the firm }&\$ 20 \text { million } & \$ 5 \text { million } &\$ 30 \text { milion }
\end{array}$ If Firm A intends to pay $7 million cash for Firm B, then calculate the cost of this merger.
A)$2 million
B)$3 million
C)$1 million
D)zero

Question

Assume the following data: $\begin{array}{lccl}
& \text { Firm A } & \text { Firm B } & \text { Firm } \mathrm{AB} \text { (after merger of } \mathrm{A} \text { and } \mathrm{B} \text { ) } \
\text { Market Price per share } & \$ 20 & \$ 10 & \
\text { Number of shares }  & 1,000,000 & \$ 200,000 & \
\text { Market value of the firm }&\$ 20 \text { million } & \$ 5 \text { million } &\$ 30 \text { milion }
\end{array}$ If Firm A intends to pay $7 million cash for Firm B, then calculate the cost of this merger.
A)$2 million
B)$3 million
C)$1 million
D)zero

Quizplus · Accepted Answer

The cost of the merger is the cash paid ($7 million) minus the market value of Firm B ($5 million), which equals $2 million.

Assume the Following Data If Firm a Intends to Pay $7 Million Cash for