Both fiRms Are 100% Equity-fiNanced

question 330

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 merger premium over firm B's stock price?

• A) 8.50%
• B) 9.25%
• C) 10.00%
• D) 10.25%
• E) 11.50%

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Definitions:

Inflation

An increase in the economy’s average price level.

Expansion

Expansion refers to the phase in the economic cycle where an economy is growing and experiencing increasing levels of output, employment, and income.

Actual Output

The actual quantity of goods and services produced in an economy over a specific period.

Demand

The desire and ability of consumers to purchase goods and services at given prices.