Harrods PLC has a market value of 131 million and 4 million shares outstanding. Selfridge Department Store has a market value of 33 million and 2 million shares outstanding. Harrods is contemplating acquiring Selfridge. Harrods's CFO concludes that the combined firm with synergy will be worth 179 million and Selfridge can be acquired at a premium of 10 million.

a.If Harrods offers 1.2 million shares of its stock in exchange for the 2 million shares of Selfridge, what will the stock price of Harrods be after the acquisition?

b.What exchange ratio between the two stocks would make the value of a stock offer equivalent to a cash offer of 43 million?

Exchange Ratio to 1