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Firm B is willing to be acquired by firm A at a price of $34 a share in either cash or stock
Firm B is willing to be acquired by firm A at a price of $34 a share in either cash or
stock. The incremental value of the proposed acquisition is estimated at $80,000.
What is the value of firm AB if the merger is an all-stock deal?
Firm A Firm B
Number of Share 40000 12000
price per share $ 18 $31
Debt $ 0 $0
Expert Solution
Computation of the value of firm AB if the merger is an all-stock deal:-
Value of firm B to firm A = Incremental value + (Number of shares of firm B * Price per share)
= 80,000 + (12,000*$31)
= $80,000 + $372,000
= $452,000
Value of firm AB = Value of A + Value of firm B to firm A
= (40,000 * $18) + $452,000
= $720,000 + $452,000
= $1,172,000
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