For Q1-2:

Firm A (450 shares outstanding) makes an offer to buy all the shares of Firm T (600 shares outstanding) for an exchange ratio of 1:2 (one share of the combined firm for 2 shares of Firm T). The market caps of firms A and T are $4000 and $3000, respectively, before the offer is public. Firm A expects that the acquisition will create a value of $1000 in present value terms. The pre-offer share prices of both firms are fair and do not reflect any value creation from the acquisition.

Q1: What is the NPV of the acquisition to Firm A? What is the NPV of the acquisition to Firm T?

Q2: Firm A wishes to make a cash offer to buy all the shares of Firm T. The market caps of Firms A and T are $4000 and $800, respectively, before the offer is public. Firm A expects that the acquisition will create a value of $600 in present value terms. The pre-offer share prices of both firms are fair and do not reflect any value creation from the acquisition. From the perspective of Firm A, what is the break-even offer?