Firm B (Bidder) Firm T (Target)

Number of shares. 8,000 5,000

Price per share ($). 40 30

Debt($) 150,000 120,000

Once the transaction is completed, then Firm T (operating as a standalone company) can generate annual cash flows of $ 38,000 for the initial 2 years, with the first cash flow taking place immediately, followed by perpetual annual flows of $ 28,000.

Firm T, realizing the very attractive synergy, will not accept any offer with less than 50% premium. Assume the discount rate used to be 12%.

What is the value of the synergy in PV terms?

a250,260$

b300,520$

c 310,520$

d270,260$

e280,260$

What is the NPV of this transaction?

a$ 75,520

b$ 83,260

c$ 85,520

d$ 85,260

e$ 83,520