Firm A is planning on merging with Firm B.Firm A will pay Firm B's stockholders the current value of their stock plus $120,which equals one-half of the synergy,in shares of Firm A.Firm A currently has 4,000 shares of stock outstanding at a market price of $21 a share.Firm B has 1,200 shares outstanding at a price of $10 a share.What is the value of the merged firm?
A)$88,120
B)$96,240
C)$96,000
D)$84,120
E)$92,360

Question

Quizplus · Accepted Answer

First, we need to find out how much Firm A will pay for Firm B's stockholders:
120 * 1200 = $144,000
This money will be paid in shares of Firm A, so we need to find out how many shares that will be:
144,000 / 21 = 6,857.14 shares (rounded to the nearest whole share)

After the merger, the total number of shares outstanding will be:
4,000 + 6,857 = 10,857 shares

To calculate the value of the merged firm, we need to find the total market value of all the shares:
4,000 * 21 + 1,200 * 10 + 6,857 * 21 = $224,097

Therefore, the value of the merged firm is $224,097.

Firm a Is Planning on Merging with Firm B