ABC has 1.00 million shares outstanding, each of which has a price of $17. It has made a takeover offer of XYZ Corporation, which has 1.00 million shares outstanding, and a price per share of $2.71. Assume that the takeover will occur with certainty and all market participants know this. Furthermore, there are no synergies to merging the two firms. a. Assume ABC made a cash offer to purchase XYZ for $3.51 million.

the price of ABC _____ on announcement

the price of XYZ ______ on announcement?

What premium over the current market price does this offer represent?

b. Assume ABC makes a stock offer with an exchange ratio of 0.14 .

the price of ABC is ___

the price of XYZ is ____

What premium over the current market price does this offer represent?

c. Yes/ no, the premiym in the stock offer is higher/identical/lower because market prices change to reflect the fact that ABC shareholders are giving XYZ shareholders money because they are playing a premium. Thus, on the annoncement XYZ stock goes up/down and Abc stock up/down , which increases/reduces the premium relative to the cash offer