Two 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.

Firm A Firm B

Number of Shares 10,000 7,500

Price per Share $25.00 $10.00

a) What is the merger premium over firm B's stock price? (2 points)

b) What is the value of firm B to firm A? (2 points)

c ) What is the NPV of the acquisition if cash is used? (2 points)

d) What is the value of the post-merger firm following a cash acquisition? (2 points)

e) What is the price per share of the post-merger firm following a cash acquisition? (2 points)

f) What is the value of the new firm if firm B's stockholders are paid in stock? (2 points)

g) How many shares will be given to firm B's stockholders in the stock-financed deal? (2 points)

h) What will the price per share be of the post-merger firm if payment is made in stock? (2 points)

i) What is the cost of acquisition when stock financing is used? (2 points)

j) What is the NPV of the acquisition if stock financing is used? (2 points)