d) What is the cost of the acquisition if Firm A offers one share of Firm A for every

three shares of Firm B? (10%)

e) How would the cost of the cash offer and the share offer alter if the expected growth rate of Firm B were not changed by the merger? (explain your calculations). (20%)

f) There are many tools to acquire companies, discuss the difference between leveraged buyout and

management buyout, provide an example.

(15%)

Question 2

As treasurer of Firm A., you are investigating the possible acquisition of Firm B. You have the following data:

• You estimate that investors currently expect a steady growth of about 6% in Firm B earnings and dividends. Under new management this growth rate would be increased to 8% per year, without any additional capital investment required.

• Assume that the cost of equity remains unchanged and the Firm A's equity value also remains unchanged.

	Firm A	Firm B
Earnings per share	8.00	2.30
Dividend per share	3.00	1.20
Number of shares	1,500,000	900,000
Stock price	90	30