Suppose that the merger really does increase the value of the combined firms by $20,000 (i.e., PVAB – PVA – PVB = $20,000). What is the cost of the merger?
Answer: D
PVAB = 200,000 + 50,000 + 20,000 = 270,000; Price per share = 270,000/2,500 = 108;
Cost = (108)(500) 50,000 = 4,000