(25 Points) Harrods has a market value of $500 mil and 30 mil shares outstanding. Selfridge Dept. Store has a market value of $275 million and 20 million shares outstanding. Harrods is considering acquiring Selfridge. Harrods CFO concludes that the combined firm with synergy will be worth $1,000 mil. and Selfridge can be acquired at a premium of $25 mil.

(a) If Harrods offers 15 mil shares of its stock in exchange for the 20 mil shares of Selfridge, what will be the stock price of Harrods after the acquisition?

(b) What exchange ratio between the two stocks would make the value of the stock offer equivalent to a cash offer of $300 million?

(c) Now suppose Harrods were making a $300 million cash offer for Selfridge, and there were no synergies. What would be the new value of Harrods stock after the merger?