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. Shares outstanding Price per share Firm B 5,000 $42 Firm T 1,600 $17 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,000. Firm T can be acquired for $19 per share in cash or by exchange of stock wherein B offers one of its share for every two of T's shares. a. Are the shareholders of Firm T better off with the cash offer or the stock offer? b. At what exchange ratio of B shares to T shares would the shareholders in T be indifferent between the two offers? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)
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. Shares outstanding Price per share Firm B 5,000 $42 Firm T 1,600 $17 Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,000. Firm T can be acquired for $19 per share in cash or by exchange of stock wherein B offers one of its share for every two of T's shares. a. Are the shareholders of Firm T better off with the cash offer or the stock offer? b. At what exchange ratio of B shares to T shares would the shareholders in T be indifferent between the two offers? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 12P
Related questions
Question
![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.
Shares outstanding
Price per share
Firm B
5,000
$ 42
Firm T
1,600
$17
Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is
$9,000. Firm T can be acquired for $19 per share in cash or by exchange of stock
wherein B offers one of its share for every two of T's shares.
a. Shareholders of Firm T
b. Exchange ratio
a. Are the shareholders of Firm T better off with the cash offer or the stock offer?
b. At what exchange ratio of B shares to T shares would the shareholders in T be
indifferent between the two offers? (Do not round intermediate calculations and
round your answer to 4 decimal places, e.g., 32.1616.)
to 1](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe8987879-59ac-463a-85b4-fb16d5fb13f7%2F5de909bf-b94f-4380-b14c-812cd895244f%2Fb4iaex_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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.
Shares outstanding
Price per share
Firm B
5,000
$ 42
Firm T
1,600
$17
Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is
$9,000. Firm T can be acquired for $19 per share in cash or by exchange of stock
wherein B offers one of its share for every two of T's shares.
a. Shareholders of Firm T
b. Exchange ratio
a. Are the shareholders of Firm T better off with the cash offer or the stock offer?
b. At what exchange ratio of B shares to T shares would the shareholders in T be
indifferent between the two offers? (Do not round intermediate calculations and
round your answer to 4 decimal places, e.g., 32.1616.)
to 1
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