Firms B and T are planning a transaction in which B will acquire T. B has 600 sharesand T has 200 shares outstanding. The market price of each share is $25 for B and $40 for T. The synergies that can be realised from the acquisition are $7,000. Compute the exchange ratio between the two equities that would make the value of the equity offer equivalent to a cash offer of $50 per share, and assess whether the bidder should go ahead with the deal. Comment on your results.

Answer rating: 100% (QA)

To determine the exchange ratio between the equities of firms B and T that would make the value of the equity offer equivalent to a cash offer of 50 p... View the full answer