Firm A tries to acquire Firm B. Assume that both firms have no debt outstanding. Firm A estimates that the value of synergistic benefits from Firm B is $10,000,000.

Supposed Firm A tries to acquire Firm B for $30 per share in cash.

a) Figure out the NPV of the merger.

b) Figure out the stock price of the merged firm.

\begin{tabular}{|l|r|r|r|r||} \hline & Firm A & Firm B & \multicolumn{2}{|c|}{ Firm AB } \\ \hline & & & Cash acquisition & Stock acquisition \\ \hline Earnings & $5,000,000 & $1,000,000 & $6,000,000 & $6,000,000 \\ \hline Stock price & $40 & $20 & $() & $() \\ \hline# of shares & 1,000,000 & 500,000 & 1,000,000 & ( \\ \hline \end{tabular}