Answers
a) Value of the new firm=value of two firms+synergy gain
=3,000,000*75+1,200,000*25+15,000,000
=225,000,000+30,000,000+15,000,000
=270,000,000
b)NPV of acquisition if Barrison pays $30 in cash for each share
Cash out flows=1,200,000*30
=36,000,000
Cash in flows=1,200,000*25+15,000,000
=30,000,000+15,000,000
=45,000,000
NPV=Cash in flows - Cash out flows
=45,000,000 - 36,000,000
=9,000,000
Note: Assuming that entire synergy is given to soulmaster
c)NPV of the acquisition if Barrison offers one share of Barrison for every two shares of Soulmaster
Number of shares given=Soulmaster shares/2 * 1
=1,200,000/2*1
=600,000
Stock price of Barrison=75
Cash out flows=Number of shares*Stock price
=600,000*75
=45,000,000
Cash in flows=1,200,000*25+15,000,000
=30,000,000+15,000,000
=45,000,000
NPV=Cash in flows - Cash out flows
=45,000,000 - 45,000,000
=0
Note: Assuming that entire synergy is given to soulmaster
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