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Problem - cash versus stock as payment if b offers three of

Problem - Cash versus Stock as Payment

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	FIRM T
Shares outstanding	2,700	1,100
Price per share	$38	$26

Firm B has estimated that the value of the synergistic benefits from acquiring Firm T is $4,600.

Required -

a. Suppose Firm T is agreeable to a merger by an exchange of stock. If B offers three of its shares for every five of T's shares, what will the price per share of the merged firm be?

b. What is the NPV of the merger assuming the conditions in (a)?

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