Discussion
Firm A has 100 shares outstanding at a market price of $100 each and total earnings of $600. Firm B has 100 shares outstanding at a market price of $16 each and total earnings of $200. The merger is expected to produce synergies with a present value of $600.
Firm A acquires Firm B at $20 per share for Firm B's stock. Calculate the NPV of the merger to Firm A.
Answer: A
Correct answer: $200
A pays 100 shares x $20 = $2,000 for a firm worth 100 x $16 = $1,600, so the cost is $400. The NPV to A is the gain less that cost: 600 - 400 = $200. A’s shareholders keep a third of what the merger creates and B’s shareholders take two thirds, which is what the $4 per share premium buys them.
No comment is present. Be the first to comment.
Loading…
Post your comment
Please log in or register to post a comment.
Examination Categories
- SSC Exams
- Banking Exams
- Teaching Exams
- Civil Services Exams
- Railways Exams
- Engineering Recruitment Exams
- Defence Exams
- State Government Exams
- Police Exams
- Insurance Exams
- Nursing Exams
- Other Government Exams
- NRA CET
- PG Entrance Exams
- Campus Placement
- MBA Entrance Exams
- CUET and UG Entrance
- Judiciary Exams
- Regulatory Body Exams
- Software Development