This is my second time asking for help on this question. Previous answers on Che

Question

This is my second time asking for help on this question. Previous answers on Chegg are incorrect.

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 has estimated that the value of the synergistic benefits from acquiring Firm T is $9,200. Firm T can be acquired for $20 per share in cash or by exchange of stock wherein B offers one of its share 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? (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.

Explanation / Answer

Firm B Firm T Synergy Total value of consolidated group Shares outstanding 5,400 2,000 Price per share $           44 $       18 market value $   237,600 $ 36,000 $   9,200 $        282,800 Cash Offer $       20 Total value received in Cash offer $ 40,000 If share alloted 1 for 2 : Total share received by T 1000 Now Firm B total shares 6400 C V $     282,800 M V per share $          44.19 Firm T total value received in share offer $ 44,187.50 Value received in share offer is more hence share offer isworth more Indifference Point: Let B issues x shares than (282800/(5400+X))*x = 40000 By solving we get, x = 889.62 or 890 at exchange ratio of 889 shares for 2000 shares of Firm T, its shareholders would be indifferent

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