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What exchange ratio of b shares to t share would shareholder

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Reference no: EM132493462

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        5,800                        1,700

Price per share                 $55                         $25

  • Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $8,100. Firm T can be acquired for $27 per share in cash or by exchange of stock wherein B offers one of its share for every two of T's shares.

Question 1: Are the shareholders of Firm T better off with the cash offer or the stock offer? Share offer is betterCash offer is better

Question 2: 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.)

Reference no: EM132493462

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