Cash versus Stock as Payment Consider the following premerger 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 4,800 1,200 Price per share $36 $24 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,500.

a. If Firm T is willing to be acquired for $30 per share in cash, what is the NPV of the merger?

b. What will the price per share of the merged firm be assuming the conditions in (a)?

c. In part (a), what is the merger premium?

d. Suppose Firm T is agreeable to a merger by an exchange of stock. If B offers four of its shares for every five of T ’s shares, what will the price per share of the merged firm be?

e. What is the NPV of the merger assuming the conditions in (d)?