Consider the following pre-merger information about a bidding firm (firm B) and a

target firm (firm T). Assume that both firms have no debt outstanding:

Firm B Firm T

Shares outstanding 2,900 1,400

Price per share $39 $26

Firm B has estimated that the value of the synergistic benefits from acquiring firm

T is $5,500.

a. If firm T is willing to be acquired for $29 per share in cash, what is the NPV of

the merger?

b. What will the price per share of the merged firm be, assuming the conditions

in (a)?

c. In (a), what is the merger premium?

d. Suppose firm T is agreeable to a merger by an exchange of stock. If B offers

three of its shares for every five of T 's shares, what will the price per share of

the merged firm be?

e. What is the NPV of the merger assuming the conditions in (d)?