1. Pinder Ltd has announced a scrip(stock) offer to acquire Value Co. Pinder Ltds shares are trading at $13 and there are 3 million shares of outstanding. Value Cos shares are trading at $3 and there are 1 million shares outstanding. Pinder Ltd estimates that the acquisition will incur integration costs of $270,000 per year for the first three years. Pinder Ltd expects to be able to reduce overlapping capital expenditures by $700,000 during the first five years of the acquisition. The required rate of return for Pinder Ltd is 10%. Assume cash flows occur at the end of each year. Based only on the information above, what is the maximum exchange ratio that Pinder Ltd can offer before destroying shareholder value? (round to the nearest two decimal places)

0.38:1

None of the other answers.

0.26:1

0.20:1

0.32:1

2. Pinder Ltd operates in the world of Modigliani and Miller. Pinder Ltds EBIT is expected to be $159,712 and all earnings will be paid out as dividends. Pinder Ltd currently is unlevered and has 405,508 shares outstanding. Mary buys 5 shares of Pinder Ltd at $3 per share, but is unsatisfied with the expected rate of return on her investment in Pinder Ltd. If she can borrow at 5% and wants to achieve a rate of return of 25%, how much money should she borrow to buy additional shares in Pinder Ltd, based only on the information above? (round to the nearest two decimal places)

$22.30

None of the other answers.

$21.91

$22.03

$22.12