Consider the following pre-merger information about a bidding firm (firm B) and a target firm (firm T). Assume that both firms have no debt outstanding:

	Firm B	Firm T
Shares outstanding	2900	1400
Price per share	$39	$26

Firm B has estimated that the value of the synergistic benefits from acquiring firm T is $5,500.

Firm B gives two offers to Firm T. First, Firm B offers $29 per share in cash. Second, it offers three of its shares for every five of T s shares.

a. Are the shareholders of firm T better off with the cash offer or the stock offer?

b. At what exchange ratio of B shares to T shares would the shareholders in T be indifferent between the two offers?