For Q1-2:

Firm A makes an offer to buy all the shares of Firm T for $1000 cash. 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.

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

Q2: Firm A (840 shares outstanding) makes an offer to buy all the shares of Firm T (640 shares outstanding) for an exchange ratio of 1:4 (one share of the combined firm for 4 shares of Firm T). What proportion of the combined firm does Firm A shareholders own?