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What is the synergy from the merger

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Question - Firm A is analyzing the possible acquisition of Firm B. Neither firm has debt. The forecasts of Firm A show that the purchase would increase its annual after-tax cash flow by $390,000 indefinitely. The current market value of Firm B is $7 million. The current market value of Firm A is $22 million. The appropriate discount rate for the incremental cash flows is 8%. Firm A is trying to decide whether it would offer 30% of its stock or $9 million in cash to Firm B.

a. What is the synergy from the merger?

b. What is the cost to Firm A of each alternative payment method?

c. What is the NPV to Firm A of each alternative?

d. What alternative should Firm A use?

Reference no: EM132963128

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