1. Firm P wishes to acquire Firm Q. P has market value of equity of $2.6 billion and 40 million shares outstanding. Q has market value of equity of $1.4 billion and 80 million shares outstanding. The combination of P and Q is expected to generate synergies with a present value of $200 million. Assume current share prices reflect fair standalone market values.
What is the maximum price per share P would be willing to pay for Q?
A, $20
B, $25
C, $30
D, $35
E, $40
2. You have just received notification that you have won the $1 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you’re around to collect), 71 years from now. What is the present value of your windfall if the appropriate discount rate is 9 percent?