Firm A is planning on merging with Firm B. Firm A will pay Firm B's stockholders the current value of their stock in shares of Firm A. Firm A currently has 2,300 shares of stock outstanding at a market price of $20 a share. Firm B has 1,800 shares outstanding at a price of $15 a share. What is the value of the merged firm?
A) $73,000
B) $75,000
C) $76,667
D) $77,778
E) $78,000

Question

Quizplus · Accepted Answer

The value of the merged firm is the sum of the values of the two firms. The value of Firm A is 2,300 shares * $20 per share = $46,000. The value of Firm B is 1,800 shares * $15 per share = $27,000. Therefore, the value of the merged firm is $46,000 + $27,000 = $73,000.

Firm a Is Planning on Merging with Firm B