13. Firm Alpha and firm Beta are two companies which are financed wholly by equity. The CEO and sole owner of Firm Alpha would like to acquire Firm Beta. Firm Alpha's auditors suggest that the incremental value of the acquisition AV is expected to be 200. The board of directors of firm Beta announce that they will only agree to a sale if the price is 240, payable in cash or in shares. The CEO of firm Alpha contemplates whether he should pay for the acquisition of firm Beta with firm Alphas cash reserves or whether he should swap some of his shares for the shares of firm Beta. Firm Alpha Firm Beta 40 20 Share price () Number of shares 50 - 10 Total market value () 2000 200 a) What is the value of the firm Alpha after the merger if it pays for the acquisition of firm Beta using some of the CEO's shares? How will this affect the wealth of the CEO of firm Alpha? (20 Marks) b) What is the value of the firm Alpha after the merger if it pays for the acquisition of firm Beta using cash? How will this affect the wealth of the CEO of firm Alpha? Does this put him in a better or worse position than paying with shares? (20 Marks) c) From the perspective of shareholders in firm Beta, which is the better option? (10 Marks)