Given: Firm A Firm B Number of Shares 10,000 7,500 Price per Share $25.00 $10.00

Both firms are 100% equity-financed. Firm A can acquire firm B for $82,500 in the form of either cash or stock. The synergy value of the deal is $12,500. (a) FOR CASH ACQUISITION, compute the merger premium, the value of firm B to firm A, the NPV of the acquisition, and the post-merger stock price of firm A. (b) FOR STOCK ACQUISITON, compute the exchange ratio and hence the number of shares of firm A that needs to be issued to shareholders of firm B, the cost of acquisition to firm A, and the NPV of the acquisition.