Company A acquires B and expects a perpetual benefit of $100,000 pa., which has the same capitalization rate as B (hint this is the inverse of Bs P/E ratio). Calculate the NPV to the bidder (A) for a $40/sh cash offer. What is the NPV if A offers 150,000 of its shares for B's stock? Calculate the new firm's share price for both alternatives. What is your recommendation? How many shares would give the same NPV as the cash offer? A (Bidder) B (Target) P/E 15 10 # Shares 1,300,000 175,000 SEarnings 4,000,000 650,000