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Ace and Brace Homebuilding: Net advantage of Merging

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Ace and Brace Homebuilding will merge. Ace has a total market value of $50 million and Brace has a total market value of $75 million. Their merger will lead to operating efficiencies and will produce present value savings of $10 million.

a) What is the total market value of the merged firms?
b) If the merger would entail expenses amounting to $5 million, is there a net advantage to merging?
c) If Ace buys Brace's outstanding shares, paying Brace's common stockholders a $3 million premium, will the acquisition be advantageous to Ace's shareholders? How is the net advantage to merging divided between the two firm's shareholders?

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Solution Summary

This solution is comprised of a detailed explanation of the advantages of merging within the context of Ace and Brace Homebuilding. The solution is brief and is 100 words in length. All workings and explanations accompany the solutions.

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Question A
50 +75+10 = 135 million

Question B
50 +75+10-5 = 130 million
There is still a net advantage to the merger which is equal to 5 ...

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