3. Suppose you are the sole owner of company ABC. The market value of your company is $100 and there are 20 shares. Now you are thinking about acquiring the target company XYZ with a standing alone market value of $50 with 25 shares outstanding. The synergy of the two companies is $20. We assume the cost of the merger is zero, meaning target shareholders break even. a) Suppose you pay XYZ's shareholders in cash from your company ABC. What is the total firm value post-merger? What is the share price? 1 b) Suppose you instead create new shares to pay XYZ's shareholders. How many shares do you need to create? How many shares do you need to pay for each share in XYZ? Instead of $20, in the remainder of the question, we assume the synergy is -$10. c) Redo part a) under the new synergy. Would you choose to acquire company XYZ? Discuss your finding in comparison with a). 3. Suppose you are the sole owner of company ABC. The market value of your company is $100 and there are 20 shares. Now you are thinking about acquiring the target company XYZ with a standing alone market value of $50 with 25 shares outstanding. The synergy of the two companies is $20. We assume the cost of the merger is zero, meaning target shareholders break even. a) Suppose you pay XYZ's shareholders in cash from your company ABC. What is the total firm value post-merger? What is the share price? 1 b) Suppose you instead create new shares to pay XYZ's shareholders. How many shares do you need to create? How many shares do you need to pay for each share in XYZ? Instead of $20, in the remainder of the question, we assume the synergy is -$10. c) Redo part a) under the new synergy. Would you choose to acquire company XYZ? Discuss your finding in comparison with a)