Problem - Cash versus Stock as Payment
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding.
|
|
FIRM B
|
FIRM T
|
|
Shares outstanding
|
2,700
|
1,100
|
|
Price per share
|
$38
|
$26
|
Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $4,600.
Required -
a. If Firm T is willing to be acquired for $29 per share in cash, what is the NPV of the merger?
b. What will the price per share of the merged firm be assuming the conditions in (a)?
c. In part (a), what is the merger premium?