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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. Firm B Firm T Shares outstanding

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.

  Firm B Firm T
  Shares outstanding   5,000     1,600  
  Price per share $ 51   $ 20  
 

  
Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $9,200. Firm T can be acquired for $22 per share in cash or by exchange of stock wherein B offers one of its shares for every two of T's shares.

At what exchange ratio of B shares to T shares would the shareholders in T be indifferent between the two offers? (

Apr 19 2021 View more View Less

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