ABC has 1.00 million shares outstanding, each of which has a price of $15. It has made a takeover offer of XYZ Corporation, which has 1.00 million shares outstanding, and a price per share of $2.33. Assume that the takeover will occur with certainty and all market participants know this. Furthermore, there are no synergies to merging the two firms. a. Assume ABC made a cash offer to purchase XYZ for $3.93 million. What happens to the price of ABC and XYZ on the announcement? What premium over the current market price does this offer represent? b. Assume ABC makes a stock offer with an exchange ratio of 0.13. What happens to the price of ABC and XYZ this time? What premium over the current market price does this offer represent? c. At current market prices, both offers are offers purchase XYZ for $3.93 million. Does that mean that your answers to parts (a) and (b) must be identical? Explain. a. After ABC makes a cash offer purchase XYZ for $3.93 million, the price of XYZ is $ 3.93 per share. (Round to the nearest cent.) This represents a premium of 68.7 %. (Round to one decimal place.) The price of ABC is $ per share. (Round to the nearest cent.)
ABC has 1.00 million shares outstanding, each of which has a price of $15. It has made a takeover offer of XYZ Corporation, which has 1.00 million shares outstanding, and a price per share of $2.33. Assume that the takeover will occur with certainty and all market participants know this. Furthermore, there are no synergies to merging the two firms. a. Assume ABC made a cash offer to purchase XYZ for $3.93 million. What happens to the price of ABC and XYZ on the announcement? What premium over the current market price does this offer represent? b. Assume ABC makes a stock offer with an exchange ratio of 0.13. What happens to the price of ABC and XYZ this time? What premium over the current market price does this offer represent? c. At current market prices, both offers are offers purchase XYZ for $3.93 million. Does that mean that your answers to parts (a) and (b) must be identical? Explain. a. After ABC makes a cash offer purchase XYZ for $3.93 million, the price of XYZ is $ 3.93 per share. (Round to the nearest cent.) This represents a premium of 68.7 %. (Round to one decimal place.) The price of ABC is $ per share. (Round to the nearest cent.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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answer rest of part a then b and c please
Transcribed Image Text:ABC has 1.00 million shares outstanding, each of which has a price of $15. It has made a takeover offer of XYZ Corporation, which has 1.00 million shares outstanding, and a price per share of $2.33. Assume that the takeover
will occur with certainty and all market participants know this. Furthermore, there are no synergies to merging the two firms.
a. Assume ABC made a cash offer to purchase XYZ for $3.93 million. What happens to the price of ABC and XYZ on the announcement? What premium over the current market price does this offer represent?
b. Assume ABC makes a stock
r with an exchange ratio of 0.13. What happens to the price of ABC and XYZ this time? What premium over the current market price does this offer represent?
c. At current market prices, both offers are offers to purchase XYZ for $3.93 million. Does that mean that your answers to parts (a) and (b) must be identical? Explain.
a. After ABC makes a cash offer to purchase XYZ for $3.93 million, the price of XYZ is $ 3.93 per share. (Round to the nearest cent.)
This represents a premium of 68.7 %. (Round to one decimal place.)
The price of ABC is $ per share. (Round to the nearest cent.)
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