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Consider two firms, CompanyB and CompanyC, both with earnings of $10 per share and 5 million shares outstanding. CompanyC is a mature company with few
Consider two firms, CompanyB and CompanyC, both with earnings of $10 per share and 5 million shares outstanding. CompanyC is a mature company with few growth opportunities and a stock price of $25 per share. CompanyB is a new firm with much higher growth opportunities and a stock price of $40 per share. Assume CompanyB acquires CompanyC using its own stock and the takeover adds no value. In a perfect capital market, how many shares must Bob offer CompanyC's shareholders in exchange for their shares? A) 0.625 B) 1 C) 0.3846 D) 1.6
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