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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Answers (1)
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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