Cash versus Stock as Payment Consider the following premerger information about a bidding fi rm (fi rm B) and a target fi rm (fi rm T). Assume that both fi rms have no debt outstanding.

Firm B Firm T Shares outstanding 1,500 900 Price per share $34 $24 Firm B has estimated that the value of the synergistic benefi ts from acquiring fi rm T is

$3,000.

a. If fi rm T is willing to be acquired for $27 per share in cash, what is the NPV of the merger?

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

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

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

e. What is the NPV of the merger assuming the conditions in (d)? LO.1