Use the following information to answer the questions. Round your answers if necessary, to two decimal...

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Use the following information to answer the questions. Round your answers if necessary, to two decimal...

Use the following information to answer the questions. Round your answers if necessary, to two decimal places.

Firm A can acquire firm B for $78,750 in cash or with stock worth $78,750 priced at its current price of $25 per share of stock. The synergy value of the deal is $15,000. Both firms are 100% equity financed.

Firm A: Number of Shares = 10,000 ; Price per Share = $25.00

Firm B: Number of Shares = 10,000 ; Price per Share = $10.00

What will be the value of the post-merger firm following a cash acquisition?

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Answer 1

Answer #1

Value of Firm A [ 10000*25 ]	250000
Value of Firm B [ 10000*10 ]	100000
Synergy	15000
Total value	365000
(-) Cash paid	78750
Total value post-merger	286250

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Answer 2

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