Firm X and Firm Y are both 100% equity-financed. Firm X wants to acquire Firm Y for $165,000 in the form of either cash or stock. The synergy value of the deal is $25,000. You are given the following additional information:

1. What is the merger premium expressed as a percent of Firm Y's stock price?
2. What is the NPV of the acquisition if cash is used?
3. What is the price per share of the post-merger firm following a cash acquisition?
4. What is the price per share of the post-merger firm if payment is made in stock?

What is the NPV of acquiring Firm Y when stock financing is used?

Transcribed Image Text:

Number of Shares Price per Share Firm X 20,000 $37.50 Firm Y 9,750 $15.00 Number of Shares Price per Share Firm X 20,000 $37.50 Firm Y 9,750 $15.00

Answer rating: 100% (QA)

1Merger premium expressed as a percent of Firm Ys stock price Purchase consideration in shares 16500... View the full answer