Company A considers acquiring company B. Shares of the company A trade at $30 and there are 5,000 of A shares outstanding. Company B has 200 shares outstanding worth $100 each. If A acquires B, then the resulting synergy will amount to $10,000.

Suppose A offers to exchange every B’s share for four shares in the merged company.

1.What will be the share price of the merged company?

2. What will be the total benefit for the existing shareholders of A?

3. What will be the total benefit for the existing shareholders of B?

4.  Suppose A offers to exchange every B’s share for $130 in cash. What will be the share price of the merged company?

5.  Suppose A offers to exchange every B’s share for $130 in cash. What will be the total benefit for the existing shareholders of A?

6. Suppose A offers to exchange every B’s share for $130 in cash. What will be the total benefit for the existing shareholders of B?