>> Business Economics
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:
FIRM X FIRM Y
Numbers of shares 20,000 9,750
Price per share $37.50 $15.00
a. What is the merger premium expressed as a percent of Firm Y's stock price? What is the NPV of the acquisition if cash is used?
b. What is the price per share of the post-merger firm following a cash acquisition?
c. What is the price per share of the post-merger firm if payment is made in stock?
d. What is the NPV of acquiring Firm Y when stock financing is used?