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Firm A is considering a merger with Firm B. Based on the following data, what is...

Firm A is considering a merger with Firm B. Based on the following data, what is the stock exchange ratio if Firm A negotiates a merger with Firm B and if all the synergy gain goes to Firm B's shareholders?

Firm A:

Market value of debt: $2 million

Market value of equity: $4 million

Number of shares: 0.2 million

Estimated total firm value based on value-based management model if the merger takes place: 10 million

Firm B:

Market value of debt: $5 million

Market value of equity: $7 million

Number of shares: 0.5 million

Estimated total firm value based on value-based management model if the merger takes place: 14 million

Select one:

a. 1.1842, that is, 1 A share exchanges for 1.1842 B shares.

b. .7692 that is, 1 A share exchanges for .7692 B shares.

c. .3578, that is, 1 A share exchanges for .3578 B shares.

d. .9810, that is, 1 A share exchanges for .9810 B shares.

e. 1.3112, that is, 1 A share exchanges for 1.3112 B shares.

Expert Solution

jeff jeffy answered 2 years ago

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