Both fiRms Are 100% Equity-fiNanced

question 161

Multiple Choice

Both firms are 100% equity-financed. Firm A can acquire firm B for $82,500 in the form of either cash or stock. The synergy value of the deal is $12,500. What is the value of firm B to firm A?

• A) $12,500
• B) $57,500
• C) $75,000
• D) $87,500
• E) $125,000

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Definitions:

Means-end Analysis

A problem-solving strategy that involves breaking down the problem into smaller parts and achieving the desired goal through a series of steps.

Subgoals

Intermediate goals set as part of a strategy to achieve a larger, primary goal, making complex tasks more manageable by breaking them down.

Cognitive Capacities

The mental abilities or processes that are part of human cognition, such as memory, reasoning, and perception.

Primitive Thought

Early stage cognitive processes that are not refined or sophisticated, often relying on basic instincts and immediate responses rather than logical analysis.