2.99 See Answer

Question: In Problem 8, are the shareholders of

In Problem 8, are the shareholders of Firm T better off with the cash offer or the stock offer? At what exchange ratio of B shares to T shares would the shareholders in T be indifferent between the two offers? Problem 8: 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.
In Problem 8, are the shareholders of Firm T better off with the cash offer or the stock offer? At what exchange ratio of B shares to T shares would the shareholders in T be indifferent between the two offers?

Problem 8:
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 has estimated that the value of the synergistic benefits from acquiring Firm T is $17,000.
a. If Firm T is willing to be acquired for $23 per share in cash, what is the NPV of the merger?
b. What will the price per share of the merged firm be assuming the conditions in part (a)?
c. In part part (a), what is the merger premium?
d. Suppose Firm T is agreeable to a merger by an exchange of stock. If B offers one of its shares for every two of T’s shares, what will the price per share of the merged firm be?
e. What is the NPV of the merger assuming the conditions in part (d)?

Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $17,000. a. If Firm T is willing to be acquired for $23 per share in cash, what is the NPV of the merger? b. What will the price per share of the merged firm be assuming the conditions in part (a)? c. In part part (a), what is the merger premium? d. Suppose Firm T is agreeable to a merger by an exchange of stock. If B offers one of its shares for every two of T’s shares, what will the price per share of the merged firm be? e. What is the NPV of the merger assuming the conditions in part (d)?


2.99

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