1.The use of unused debt capacity is an advantage of a merger.

A.true B.false

2.What is the cost of acquisition in a stock acquisition?

A.The market price of the target's shares multiplied by the number of new shares issued.

B.The market price of the bidder's shares multiplied by the number of new shares issued.

C.The market price of the merged firm's shares multiplied by the number of new shares issued.

D.The cash paid to shareholders of the target firm.

E.The difference between the value of the merged firm and the value of the target firm.

3.Big Fish Inc. is acquiring Little Fish Ltd. Big Fish's share price is $10 and Little Fish's share price is $2. Both firms have 1 million shares outstanding. Big Fish expects a discounted synergistic value of $1 million from the merging of operations of the two firms. If Big Fish pays cash of $2.2 million to Little Fish's shareholders, what is the value of the merged firm?

A.$10,000,000

B.$13,000,000

C.$10,800,000

D.$12,000,000

E.$11,000,000

4.Big Fish Inc. is acquiring Little Fish Ltd. Big Fish's share price is $10 and Little Fish's share price is $2. Both firms have 1 million shares outstanding. Big Fish expects a discounted synergistic value of $1 million from the merging of operations of the two firms. If Big Fish issues $2.2 million worth of shares to Little Fish's shareholders, what is the NPV of the acquisition? Round your answer to the nearest dollar.

A.$655,738

B.$144,262

C.$823,524

D.$1,344,262

E.$800,000