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
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.