Companies a and B Are Valued as Follows Company a Now Acquires B by Offering One (New) Share

question 12

Multiple Choice

Companies A and B are valued as follows: $\begin{array} { l c l } & \mathrm { A } & \mathrm { B } \\\# \text { of shares } & 2000 & 1000 \\\text { Earnings per share } & \$ 10 & \$ 10 \\\text { Share price } & \$ 100 & \$ 50\end{array}$ Company A now acquires B by offering one (new) share of A for every two shares of B (that is, after the merger, there are 2,500 shares of A outstanding) .Suppose that the merger really does increase the value of the combined firms by $20,000..What is the cost of the merger?

• A)zero
• B)$2,000
• C)$8,000
• D)$4,000

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Definitions:

Norms

Established standards of behavior maintained by a society or group that guide individuals' actions and behaviors.

Cognitive Dissonance Theory

A psychological theory that suggests discomfort arises from holding conflicting beliefs, leading individuals to change their attitudes or beliefs to reduce the dissonance.

Social Norms

Accepted behaviors that are considered typical within a group or society, guiding interactions and expectations.

Cognitive Dissonance Theory

A theory suggesting that people experience discomfort (dissonance) when their beliefs or behaviors are inconsistent with one another, often leading to changes to reduce the dissonance.