The Following Data on a Merger Are Given Firm a Has Proposed to Acquire Firm B at a l

question 53

Multiple Choice

The following data on a merger are given: $\begin{array} { l c l l } & \text { Firm A } & \text { Firm B}&\text { Firm AB } \\\text { Price per share } & \$ 100 & \$ 10 & \\\text { Total earnings } & \$ 500 & \$ 300 & \\\text { Shares outstanding } & 100 & 40 & \\\text { Total value } & \$ 10.000 & \$ 400 & \$ 11.000\end{array}$ Firm A has proposed to acquire Firm B at a price of $20 per share for Firm B's stock.Calculate the gain from the merger.

• A)$600
• B)$150
• C)$550
• D)$700

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Definitions:

Fair Value

The estimated market value of an asset or liability, reflecting the price that two willing parties would agree to in an arm's length transaction.

Held-to-maturity

A category for debt securities that a company has the positive intent and ability to hold until maturity, reported at amortized cost.

Long-term Investment

Assets purchased by a company to hold for more than one year, typically including stocks, bonds, or real estate.

Voting Stock

Shares that give the shareholder the right to vote on matters of corporate policy and the election of the board of directors.