Firm A has a value of $500 million and Firm B has a value of
$300 million. Firm A has 1000 shares outstanding, and Firm B has
800 shares outstanding. Suppose that the merger would increase cash
flows of the combined firm by $5 million in perpetuity. Assuming
the cost of capital for the new firm is 5%.
Assume that Firm A purchases Firm B for $330 million. How much do
Firm A's shareholders gain from this merger?
A. |
$30 million |
|
B. |
$70 million |
|
C. |
$20 million |
|
D. |
$15 million |
|
E. |
None of the above |
D
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