Given the following data: $$\begin{array} { l c c c }
& \text { Firm A } & \text { Firm B } & \text { Firm AB (after merger of A and B) } \
\text { Market Price per share } & \$ 20 & \$ 10 & \
\text { Number of shares } & 1,000,000 & 500,000 & \
\text { Market value of the firm } & \$ 20 \text { million } & \$ 5 \text { million } & \$ 30 \text { million }
\end{array}$$
If Firm A offers 250,000 shares to Firm B's shareholders,calculate the cost of the merger:
A)$2 million
B)$3 million
C)$1 million

Question

Given the following data: $$\begin{array} { l c c c } 
& \text { Firm A } & \text { Firm B } & \text { Firm AB (after merger of A and B) } \
\text { Market Price per share } & \$ 20 & \$ 10 & \
\text { Number of shares } & 1,000,000 & 500,000 & \
\text { Market value of the firm } & \$ 20 \text { million } & \$ 5 \text { million } & \$ 30 \text { million }
\end{array}$$
If Firm A offers 250,000 shares to Firm B's shareholders,calculate the cost of the merger:
A)$2 million
B)$3 million
C)$1 million

Quizplus · Accepted Answer

The cost of the merger is the value of the shares given to Firm B's shareholders, which is 250,000 shares at Firm A's market price of $20 per share, totaling $5 million. The market value of Firm B is $5 million, so the cost of the merger is $5 million - $5 million = $0 million. However, since the market value of Firm AB is $30 million, the cost of the merger is $1 million ($30 million - $29 million).

Given the Following Data If Firm a Offers 250,000 Shares to Firm B's Shareholders,calculate