11. (i) Target Inc. currently has 2 million shares outstanding. Acquirer Inc. is considering an acquisition of Target Inc. at an offer price of $32 per share. Target Inc has the following dilutive securities:

In-the Money options

• Number of options: 250,000
• Exercise price: $20/share

Convertible Debentures:

• Face value = $1000
• Book value = 15,000,000
• Conversion ratio, CV = 40 (convertible into 40 shares of common stock)

If all the dilutive securities are converted, how many shares will the target have and what will be the equity value of target's shares at the offer price (adjusted target equity value using the 'if converted' method)? (5 marks)

1. An analyst has estimated the value of a company using two valuation methodologies. The discounted cash flow (DCF) value is $200 million, comparable recent transactions' value is $225 million. The purchase price paid for the recent comparable transaction included a 20% premium. The analyst has greater confidence in the comparable transaction method and therefore gives a weight of 60% to this methodology, with 40% weight to the discounted cash flow methodology. Estimate the weighted average value of the firm using these two valuation methodologies and using the weights or relative importance the analyst gives to each methodology. (3 marks)