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23 June, 10:27

Consider the following pre-merger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding. Firm B Firm T Shares Outstanding 8,700 3,600 Price per Share $47 $19 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $16,700. If Firm T is willing to be acquired for $21 per share in cash, what will be the price per share for the merged firm? $47 $46.29 $48.09 $19

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  1. 23 June, 12:18
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    The share price for the merged firm is $48.09. Therefore, the correct option is C

    Explanation:

    (a) - Net Present Value (NPV)

    Net Present Value (NPV) = Market Value of the Target Firm + synergistic benefit - Acquisition Value

    = [3600 Shares multiply $19] plus $16700 minus [3600 Shares multiply $21]

    = $68400 plus 16700 minus 75600

    = $9500

    "Net Present Value (NPV) = $9500

    (b) Share Price

    Share price = [Market Value of the Bidding firm + NPV] / Number of shares of the Bidding firm

    = [ (8700Shares multiply $47) plus $9500] / 8700 Shares

    = [$408900 + 9500] / 8700 Shares

    = $48.09 per share

    "Share Price = $48.09 per share"
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