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3. Firm Alpha is considering acquiring firm Beta. Beta's value under current manage- ment, v, is uniformly distributed between $0 and $50 million, depending on
3. Firm Alpha is considering acquiring firm Beta. Beta's value under current manage- ment, v, is uniformly distributed between $0 and $50 million, depending on the outcome m of a risky project. Beta knows the outcome of the project and hence the value v, but Alpha only knows that v is uniformly distributed between 0 and 50. Regardless of the outcome of the project, T is worth 25% more to Alpha than Beta (Alpha values Beta at 1.25v), so for example if Beta is worth $50 to Beta, the company is worth $62.5 to Alpha. Alpha makes a single take-it-or-leave-it offer for Beta, which Beta accepts or rejects. Both firms are risk neutral. Recall: the probability of drawing any particular value from a uniform distribution between numbers a and b (with a
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