Question 2 (30 points): Consider the following information for two all-equity firms, Firm A and Firm B: Firm A

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Question 2 (30 points):
Consider the following information
for two all-equity firms, Firm A and Firm B:
Firm
A
Firm B
Shares
outstanding
2,000
6,000
Price per
share
$
40
$ 30
Firm A estimates that the value of
the synergistic benefit from acquiring Firm B is $6,000. Firm B has
indicated that it would accept a cash purchase offer of $35 per
share. Should Firm A proceed?
Question 3 (30 points):
Consider the following information
for two all-equity firms, Firm A and Firm B:
Firm
A
Firm B
Total
earnings
$3,000
$1,100
Shares
outstanding

600
400
Price per
share
$
70
$ 15
Firm A is acquiring Firm B by
exchanging 100 of its shares for all the shares in Firm B.