Exe plc is considering an acquisition of Wye plc. Both companies are entirely equity financed. Relevant information is as follows:

Exe Wye

Number of shares 16,250,000 11,252,000

Share price 18.00 3.11

The risk-free interest rate is 4% and the corporation tax rate is 19%.

The synergies from the acquisition are expected to have a total present value of 32.1 million. The shareholders of Wye will expect a premium of 25% to agree to the acquisition.

(a) What will be the share price of the merged firm if Exe pays 3.89 for each share of Wye?

(b) If Exe offers one of its own shares for every four of Wye's shares, what will be the new share price of the merged firm? What premium will Exe be paying for Wye?

(c) What share exchange ratio would give a premium of 25% to Wye's shareholders?

(d) Assume Exe pays 3.89 for each share of Wye, by issuing perpetual riskless debt with face value 26,245,290 and paying the rest in cash. What is the market value of the merged firm? What is the price per share?