7.10. SALE OF BUSINESS. Suppose that a firm owns a business unit that it wants to sell. Potential buyers know that the seller values the unit at either $100 million, $110 million, $120 million,... $190 million, each value equally likely. The seller knows the precise value, but the buyer only knows the distribution. The buyer expects to gain from synergies with its existing businesses, so that its value is equal to seller's value plus $10 million (In other words, there are gains from trade.) Finally, the buyer must make a take-it-or-leave-it offer at some price p. How much should the buyer offer?

7.10. SALE OF BUSINESS. Suppose that a firm owns a business unit that it wants to sell. Potential buyers know that the seller values the unit at either $100 million, $110 million, $120 million,... $190 million, each value equally likely. The seller knows the precise value, but the buyer only knows the distribution. The buyer expects to gain from synergies with its existing businesses, so that its value is equal to seller's value plus $10 million (In other words, there are gains from trade.) Finally, the buyer must make a take-it-or-leave-it offer at some price p. How much should the buyer offer?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5. Suppose you have two job offers. Big Inc. will pay you $75,000. Small Ltd. pays $40,000 with profit sharing. You believe there are three possible states of the world. There is a 30% chance demand will be low and no profits will be shared. There is a 30% chance demand will be high and $80,000 will be shared. Otherwise demand will be medium and $40,000 will be shared. You are risk neutral and that other than pay the two jobs are the same to you. a) Draw the normal form game against nature. b) Which job is better? c) Suppose you can acquire information that will tell you for certain whether or not demand will be low. If demand is not low, it does not tell you whether it is medium or high. What is the value of such information to you?
9. Continuing with the question above (please look at question 8 on the image attached), if Sainsbury's shareholders are concerned with managements' behaviour, which of the following options is LIKELY to help? a) Linking managers' salaries to the firm's growth rates.b) Providing stock options for the managers.c) Linking manager's salaries to the firm's revenue.d) Raising the manager's salaries.e) All of these will help. (There is an image attached with the question needed to complete this)
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2. A group of investors is planning to build an athletic equipment and apparel store in Saskatoon, close to a group of existing big box stores. The group spends $800,000 to buy the required land and to develop the parking lot. After completing these steps they terminate the project when they learn that another athletic store is going to be built close by. What option have the investors exercised? Three years later, the investors still own the land and improvements. How should they value these things if they decide at that time to complete the store as originally planned?
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A 33.
All the investment vehicles that you can use in your investment plan are traded in the securities markets in the form of stocks, bonds, and other financial instruments. There are physical places such as the NYSE (New York Stock Exchange) or the electronic networks such as NASDAQ (National Association of Securities Dealers Automated Quotations) where investors trade these securities. Securities markets can be divided into primary and secondary markets. When securities are bought and sold by investors who did not originally purchase the issued security, the transactions take place in the market. Within the arena of security trading, the secondary market plays an extremely important role. The secondary market can be divided into the broker market and dealer market. For each of the following statements, indicate by checking the appropriate boxes, whether each statement is true of broker markets, dealer markets, both markets, or neither market. Broker Dealer…
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