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Company A has a market value of equity of $2,000 million and 80 million shares outstanding. Company B has a market value of equity of

Company A has a market value of equity of $2,000 million and 80 million shares outstanding. Company B has a market value of equity of $400 million and 25 million shares outstanding. Company A announces at the beginning of 2019 that is going to acquire Company B. The projected pre-tax gains in operating income (in millions of $) from the merger are:
2019 2020 2021 2022 2023
Pre-tax Gains in Operating Income 12 16 28 38 45
The projected pre-tax gains in operating income are expected to grow at 4% after year 2023. The company is using a discount rate of 8% to value the synergies. The marginal corporate tax rate is 35%. Company A has decided to pay a $300 million premium for Company B. Assume that capital markets are efficient and that there is a 100% probability the deal will be closed.
Question 3.a By how much the price per share of Company A would change at the time of the announcement of the acquisition?
Question 3.b If Company A were to make a 100% stock offer for Company B, what would the exchange ratio be? Remember that the exchange ratio is the number of Company As shares that the shareholders of Company B will receive in exchange for each of their shares.
Question 3.c If Company A were to offer 0.80 share of Company A for each share of company B, by how much the price per share of Company A would change at the time of the announcement of the acquisition?

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