Brite Industries has agreed to merge with Nu-Day in exchange for receiving shares in the combined firm equal to Brite's current market value.There are two economic scenarios with equal probabilities of occurrence that must be considered.The market value of Brite will be either $45 a share or $30 a share depending on the economic state.Similarly,the market value of Nu-Day will be either $75 or $50 a share.What value per share will the original Nu-Day shareholders receive in the combined firm assuming no synergy is created by the merger?

Question

Quizplus · Accepted Answer

Given the equal probability of the economic scenarios, the average market values for Brite and Nu-Day can be calculated first. For Brite, it's ($45 + $30) / 2 = $37.5 per share. For Nu-Day, it's ($75 + $50) / 2 = $62.5 per share. Since the merger is based on market value and no synergy is created, the value per share for Nu-Day shareholders in the combined firm remains $62.50, which is their average market value.

Brite Industries Has Agreed to Merge with Nu-Day in Exchange