Firms a and B Intend to Merge and Firm a Has

question 88

Essay

Firms A and B intend to merge and Firm A has calculated the NPV of the merger to be $2 million after paying $8 million for Firm
B.If Firm A had a pre-merger value of $10 million and Firm B had a pre-merger value of $6 million, calculate the value of the merged entity, as well as the cost of the merger.
PV_AB = PV_A + PV_B + gain
= $10 million + $6 million + $4 million
= $20 million
Cost or merger = cash - PV_B
= $8 million - $6 million
= $2 million
NPV = $4 million - $2 million

---

Definitions:

Confidence Interval

A range of values, derived from the sample statistics, that is likely to contain the population parameter with a certain level of confidence.

Population Mean

Population mean is the average of all the values in a population.

Standard Deviation

A measure of the amount of variation or dispersion in a set of values, indicating how spread out the numbers are from the mean.

Confidence Interval

A series of values, obtained from statistics of a sample, that has a high probability of including the value of an unseen population parameter.