3. ABC has 1 million shares outstanding, price per share (PPS) is $20. It has made a takeover offer of XYZ corporation, which has 1 million shares outstanding with PPS of $3.50. Assuming there are no synergies and acquisition will occur as equity swap with offer price for XYZ of $4.00 per share:

a) what will happen to the price per share of a combined corporation after the offer announcement?

b) what will be the price of ABC and XYZ after announcement?

c) what is the actual premium that ABC will pay for XYZ stock?