Mergers and acquisitions Consider the data below, which indicate the NPV of Firms A and B:

a What is the current value of the shares of each firm?

b If Firm A acquires Firm B, and the value of the combined Firm A is \($40,\) what is the value of synergy?

c Suppose that Firm A offers cash of \($15\) to the shareholders of Firm B; what is the premium A is offering?

d Do you think they will accept (2/3 majority required)?

e If they do, what will be the new value of Firm A?

f Now suppose that Firm A offers \($10\) in cash and the rest in shares in the new Firm A. How many shares would it have to offer in order to make the equivalent of the cash offer of \($15?

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Firm A Firm B Value $20 $10 Shares outstanding 10 10