Harrods PLC has a market value of £600 million and 30 million shares outstanding.

Selfridge Department Store has a market value of £200 million and 20 million shares outstanding. Harrods is contemplating acquiring Selfridge Department Store. Harrods’

CFO concludes that the combined firm with synergy will be worth £1 billion and Selfridge can be acquired at a premium of £100 million.

a. If Harrods offers 15 million shares to exchange for the 20 million shares of Selfridge, what will the after-acquisition stock price of Harrods be?

b. To make the value of a stock offer equivalent to a cash offer of £300 million, what would be the proper exchange ratio of the two stocks?