Firm A buys Firm B equity for 65 million in cash (Cedi amounts below in million). The stand-alone market value of firm A and B are PVa = 200 and PVb = 50 respectively while PVab= 275. Estimate the gain, cost and NPV of the transaction.

30) Purchase for Cash - Firm A buys Firm B equity for 130 million in cash (Cedi amounts below in million). Also, PVa = 300; PVb= 70, PVab= 460. Estimate the gain, cost and NPV of the transaction.

Merger and Acquisition Purchase for Stock

Firm A buys Firm B equity for 0.325 million shares of firm A stock; A has 1.0 million shares outstanding before the merger (Cedi amounts below in million. PVa= 200, PVb= 50 and PVab= 275. Synergistic gains is estimated to be 25 million.

Gain = PVab - (PVa+ PVb) = 25

X = the fraction of the firm A shares that will be owned by the firm B shareholders after the merger = [.325/1.325] since firm A pays .325 million shares to the firm B shareholders and has 1.325 million shares outstanding after the merger.

Cost = portion of Gain going to the firm B shareholders

= [Value of firm A stock paid to firm B shareholders] - PVb

= X (PVab) - PVb

= [.325/1.325] 275 - 50

= 17.45

NPV = portion of Gain going to the firm A shareholders

= Gain - Cost

= 25 - 17.45

= 7.55