1. It is commonly argued that the NPV of a merger depends on the method of payment used. Cash offers seem to yield a higher NPV than stock offers. Thus, acquiring firms need to be very careful in setting the exchange ratio in a stock offer deal. Give a DETAILED EXPLANATION why?
2. You have $1,000 to make investments, which will allocate $350 in stock X, $200 in stock Y, and the rest in stock Z. The expected returns of these stocks are 8 percent, 16 percent, and 10 percent, respectively. What is the expected return of the portfolio?