1. [Total 12 points] Firm B is willing to be acquired by firm A at a price of $36 a share in either cash or stock. The incremental value of the proposed acquisition is estimated at $80,000.

	Firm A	Firm B
Number of shares	40,000	12,000
Price per share	$18.00	$31.00
Debt	$0	$0
Earning	$80,000	$48,000

1. What is the value of firm B to firm A? What is the NPV of acquiring firm B if the merger is an all cash deal? (3 pts)

2. What is the total amount of the merger premium if firm A acquires firm B in an all cash deal? What is the per share price of the post-merger firm AB if the merger is a cash deal? (3 pts)

3. What is the value of firm AB if the merger is an all-stock deal? What is the price per share of firm AB if the merger is an all-stock deal? (3 pts)

4. What is NPV of the merger of firm B by firm A in an all-stock deal? (3 points)