F Corporation is considering the acquisition of T Corporation. Without the merger, T Corporations cash flow to capital is expected to be $6 million next year and is expected to grow at a constant 4 percent a year thereafter. With a merger, T Corporations constant growth rate will be increased to 6 percent. The tax rate is 40 percent and the after-tax required return is 10 percent. Assume year-end cash flows.

a. What is the value of Ts capital if T is not acquired by F Corporation?

b. What is the value of Ts capital if T is acquired by F Corporation?

(Stock for Stock Merger) A Corporation is considering the acquisition of X Corporation. Each corporation has the following data:

Existing Income Number of Shares

A Corporation $8,200,000 621,000

X Corporation $4,200,000 365,000

Synergistic additional benefits from the combination are $1,800,000.

What is the minimum exchange ratio is necessary to keep the X shareholders whole in terms of earnings per share?

What is the maximum exchange ratio would the A Corporation shareholder accept in taking over X Corporation and remain whole in terms of earnings per share? (note you will need to use the formulas in the book to solve this)