. Company A plans to acquire company B. A's investment banker provides the following information about B's projected cash flows to the firm (after tax and necessary investments; numbers are in millions):

Year Cash flows

1 $154

2 $170

After the second year, cash flows are expected to grow at an annual rate of 6%.

Company B has debt of $800 million, and the proper cost of capital of B is 14%.

Currently, B has 2 million shares whose price is $400.

a. What is the maximum price that A should offer per share of B? Answer: $.....

b. Company A has 2 million shares whose price is $1000. It buys company B for a premium of 25% over its current price and pays by exchanging its stock for Bs stock.

What is the price of As stock after the deal is done?

c. What is the effective premium received for a share of B after the deal is completed and the market prices the stock according to the investment bankers information that is made public. The effective premium is .%.