Atmosphere,Inc.has offered $860 million cash for all of the common stock in ACE Corporation.Based on recent market information,ACE is worth $710 million as an independent operation.For the merger to make economic sense for Atmosphere,what would the minimum estimated present value of the enhancements from the merger have to be?

Question

Quizplus · Accepted Answer

If ACE is worth $710 million as an independent operation, there needs to be a minimum estimated present value of $150 million in enhancements from the merger for Atmosphere to make economic sense. This is because the offer is $860 million in cash, which is $150 million higher than the value of ACE as an independent operation ($860 million - $710 million = $150 million). If the enhancements were less than $150 million, it would not be economically beneficial for Atmosphere to proceed with the merger. Therefore, the correct answer is C.