Companies a and B Are Valued as Follows Company a Now Acquires B by Offering One (New) Share

Multiple Choice

Companies A and B are valued as follows: $\begin{array} { l c l } & \mathrm { A } & \mathrm { B } \\\# \text { of shares } & 2000 & 1000 \\\text { Earnings per share } & \$ 10 & \$ 10 \\\text { Share price } & \$ 100 & \$ 50\end{array}$ Company A now acquires B by offering one (new) share of A for every two shares of B (that is, after the merger, there are 2,500 shares of A outstanding) .Suppose that the merger really does increase the value of the combined firms by $20,000..What is the cost of the merger?

A) zero
B) $2,000
C) $8,000
D) $4,000