Assume the following data: $$\begin{array} { l c c c }
& \text { Firm A } & \text { Firm B } & \text { Firm AB (after merger of } A \text { and B) } \
\text { Market Price per share } & \$ 20 & \$ 10 & \
\text { Number of shares } & 1,000,000 & 500,000 & \
\text { Market value of the firm } & \$ 20 \text { million } & \$ 5 \text { million } & \$ 30 \text { million }
\end{array}$$
If Firm A intends to pay $7 million cash for Firm B,then calculate the cost of this merger.
A)$2 million
B)$3 million
C)$1 million
D)zero

Question

Assume the following data: $$\begin{array} { l c c c } 
& \text { Firm A } & \text { Firm B } & \text { Firm AB (after merger of } A \text { and B) } \
\text { Market Price per share } & \$ 20 & \$ 10 & \
\text { Number of shares } & 1,000,000 & 500,000 & \
\text { Market value of the firm } & \$ 20 \text { million } & \$ 5 \text { million } & \$ 30 \text { million }
\end{array}$$
If Firm A intends to pay $7 million cash for Firm B,then calculate the cost of this merger.
A)$2 million
B)$3 million
C)$1 million
D)zero

Quizplus · Accepted Answer

The cost of the merger is the difference between the cash paid ($7 million) and the market value of Firm B ($5 million), which is $2 million.

Assume the Following Data If Firm a Intends to Pay $7 Million Cash for }