Question

10 of 20 (15 complete) Score: 0 of 1 pt Text Question 2.11 HW Score: 75%, 15 of 20 pt Question Help An acquiring firm, A, seeks to buy a target firm, T. The acquiring firm has better managers. The value of the target firm, If aoquired by A, is $125 million. The value of the target firm under its current management is only $90 million. However, the managers of T can impose a poison pill that would reduce the value of firm T to the acquirer by amount P without providing any benefit to shareholders of T. Assume the poison pill reduces the value of firm T to firm A's and to firm 's shareholders by the same amount. The minimum value of P that would prevent A from acquiring Tis P2 million (Enter your response rounded to the nearest whole number) Enter your answer in the answer box and then click Check Answer Waterkant Clear All

Answer 1

Currently T is at $90 and valued @$125 if acquired by A

So A improves the value by 125/90 = 38.88%

if Poison Pill P is introduced then new value of T is 90-P and on acquiring by A = (90-P)1.3888

As per problem the above value should be same as original P to prevent nay loss to either share holders  

P= (90-P)1.3888 and P = 25.2

So min value of Poison Pill = 25.2