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Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm...

Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding.

  

Firm B Firm T
  Shares outstanding 5,600 2,200
  Price per share $ 45 $ 19

  

Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,300. Firm T can be acquired for $21 per share in cash or by exchange of stock wherein B offers one of its shares for every two of T's shares.

At what exchange ratio of B shares to T shares would the shareholders in T be indifferent between the two offers?
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Answer #1

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Home nert Page Layout Formulas Data Review View dd-Ins Cut E AutoSum Wrap Text aCopy B 1 프 . Ej-., Δ. : r_一 逻锂函Merge & Center. $, % , 弼,8 Paste Conditional Format CeInsert Delete Format Formatting as Table Styles2 Clear Sort &Find & Format Painter Clipboard Font Alignment Number Cells Edting FW38 Formula Bar FN FO FR FS FT FU FV FW FX FY FZ 24 25 26 27 28 29 30 31 32 EXCHANGE RATIO NPVCURRENT MARKET VALUE OF TARGET FIRM+SYNERGY -CASH OFFER VALUE OF TARGET FIRM NPV(2200X 19)+9300 (2200X 21)- 4900 NPV WILL BE ADDED TO ACQUIRING FIRM SHARE PRICE OF FIRMB- 45.88 ((5600 X 45) +4900)/5600 0.4578 21/45.88 34 35 36 37 38 39 40 41 42 ANS SO EXCHANGE RATIO SHOULD BE CASH PRICE OFFERED/SHARE PRICE AFTER MERGER 4NYTC NPV 3 ASSETS NPV real cfat . allocation amorti LOAN OPTIONS . SPLIT VALUE OF SHARE . HPR REAL RETURN (EPS BEST PLAN EAC HIGH LOW | Sheet1 , 21:29 03-01-2019

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