Harrods PLC has a market value of £93 million and 5 million shares outstanding. Selfridge Department Store has a market value of £30.4 million and 2 million shares outstanding. Harrods is contemplating acquiring Selfridge. Harrods’s CFO concludes that the combined firm with synergy will be worth £147 million and Selfridge can be acquired at a premium of £5.8 million.

a. If Harrods offers 1.2 million shares of its stock in exchange for the 2 million shares of Selfridge, what will the stock price of Harrods be after the acquisition?

b. What exchange ratio between the two stocks would make the value of a stock offer equivalent to a cash offer of £36.2 million?