ABC CorpHas Offered One Million Shares Having a Total Market Value

ABC Corp.has offered one million shares having a total market value of $8 million for XYZ Corp.After the merger is announced, shares in ABC trade for $7 each.If ABC is confident about XYZ's value, what has happened to the cost of the merger?

A) It increases by $1 million
B) It decreases by $1 million
C) It increases by $9 million
D) It remains constant Pre-Announcement:
Cost of merger = Value of acquired firm
= ($8 x 1 million) - value of acquired firm
= $8 million - value of acquired firm
Post-Announcement:
Cost of merger = $7 million - value of acquired firm

Correct Answer:

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