Firm X has a market value of $8,400 with 120 shares outstanding and a price per share of $70. Firm Y has a market value of $2,000 with 100 shares outstanding and a price per share of $20. Firm X is acquiring Firm Y by exchanging 30 of its shares for all 100 of Firm Y's shares. Assume the merger creates $400 of synergy. What will be the value of Firm A's shareholders' stake in the merged firm?
A) $8,080
B) $9,200
C) $8,820
D) $8,640
E) $9,050
D) $8,640
Explanation: Combined firm value = $8,400 + 2,000 + 400
Combined firm value = $10,800
Total new shares = 120 + 30
Total new shares = 150
Firm A's shareholders' value = (120/150)($10,800)
Firm A's shareholders' value = $8,640
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