Firm a Has a Value of $100 Million, and B

question 43

Multiple Choice

Firm A has a value of $100 million, and B has a value of $60 million. Merging the two would allow a cost savings with a present value of $20 million. Firm A purchases B for $65 million. How much do firm A's shareholders gain from this merger?

• A) $30 million
• B) $20 million
• C) $15 million
• D) $5 million

---

Definitions:

Payment

is the transfer of money or goods from one party to another in exchange for goods, services, or to fulfill a legal obligation.

Future Value

The value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.

Deposit

A sum of money placed or kept in a bank account, usually to gain interest.

Savings Account

A deposit account held at a bank or institution that pays interest but typically has limitations on how often withdrawals can be made.