The following data on a merger is given: $$\begin{array} { l c l l }
& \text { Firm A } & \text { Firm B Firm AB } \
\text { Price per share } & \$ 100 & \$ 10 & \
\text { Total earnings } & \$ 500 & \$ 300 & \
\text { Shares outstanding } & 100 & 40 & \
\text { Total value } & \$ 10,000 & \$ 400 & \$ 11,000
\end{array}$$
Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock.Calculate the NPV of the merger.
A)$200
B)$400
C)$600
D)$150

Question

The following data on a merger is given: $$\begin{array} { l c l l } 
& \text { Firm A } & \text { Firm B Firm AB } \
\text { Price per share } & \$ 100 & \$ 10 & \
\text { Total earnings } & \$ 500 & \$ 300 & \
\text { Shares outstanding } & 100 & 40 & \
\text { Total value } & \$ 10,000 & \$ 400 & \$ 11,000
\end{array}$$
Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock.Calculate the NPV of the merger.
A)$200
B)$400
C)$600
D)$150

Quizplus · Accepted Answer

The NPV of the merger is the difference between the value of the combined firm and the cost of the acquisition. The value of the combined firm is $11,000, and the cost of the acquisition is $20 * 40 = $800. Therefore, the NPV of the merger is $11,000 - $800 = $200.

The Following Data on a Merger Is Given Firm a Has Proposed to Acquire Firm B at a l