Question
Firm A wants to acquire Firm B. Recently, Firm B's stock price increased from $20 to $24 per share, evidently due to its excellent financial
Firm A wants to acquire Firm B. Recently, Firm B's stock price increased from $20 to $24 per share, evidently due to its excellent financial performance. Firm A thus estimates Firm B's stand-alone price at $24. Firm A intends to purchase all 100,000 shares of Firm B for $27 per share (cash offer), expecting a postmerger gain of $800,000. However, the CFO suggests a re-evaluation of the offer, pointing out that the true stand-alone value Firm B may be $20 per share, not $24 per share. If the stand-alone value is $20 per share, will the merger still generate positive NPV for Firm A?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started