Firm a Has a Value of $200 Million and Firm

question 7

Multiple Choice

Firm A has a value of $200 million and Firm B has a value of $120 million. Merging the two would enable cost savings with a present value of $30 million. Firm A purchases Firm B for $130 million. How much do Firm A's shareholders gain from this merger?

• A)$30 million
• B)$20 million
• C)$15 million
• D)$10 million

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Definitions:

Extraction Costs

The expenses associated with the removal of resources or raw materials from the earth for use or sale.

User Costs

The expenses incurred by using an asset or service, including maintenance and opportunity costs.

Quantity Extracted

The total amount of a resource or product that is removed from its source.

Reserve

Assets held back or saved for future use or to meet contingencies, often referring to cash, commodities, or other financial assets.