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Item Firm a Firm B outstanding shares 2000 1000 price per...

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Finance

Item Firm a Firm B
outstanding shares 2000 1000
price per share US$40 US$20

Consider the following information above for Firms A and B.

Firm A is considering taking over Firm B.The synergy benefits from the takeover are estimated at US $5000

(A) At a cash consideration of US$22 per share, what is the NPV of acquisition to firm A?

(B) Assuming the cash consideration in part (A) above ,what will be post merger price per share?

(C) Considering the cash consideration in part (A),what is the amount of merger premium

(D) if the terms of merger provide for a stock consideration,with an exchange ratio of 1:2,what will be the NPV of acquisition to Firm A?what will be the post-Merger Price ?

(E)If an amount of US$22000 is used as the consideration amount but the terms of merger provide for a stock consideration ,how will your answer to part (D)above change?comment on the difference in your answers(if any ).

(F) What will be the NPV of Acquisition for Firm B in parts (A) , (D) and (E)

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