Instructions: Answer all three questions on the blue book provided. You have 90 minutes to finish the test. At the end, please hand me the blue book and the sheet with questions. Please write as clearly as you can. If you believe you need to state assumptions, please do so clearly. Maximum score is 90/90. The exam is closed book but you can use a one-page (double-sided) crib sheet and a calculator. Question 1. (30 points) The boards of company A and B are negotiating an M&A deal. The current stock prices are: $10 per share for A and $12 per share for B. There are 9 million shares of A and 5 million shares of B outstanding. The boards expect the deal to generate synergies equal to $10 million in present value. Assume that the current market valuations of A and B are a good estimate of their true values as standalone entities. (a) [10 points] Initially, A offered $12 per share in cash and 0.2 shares of newly-issued shares of A for each share of B. What is the value of this offer for a target shareholder? (b) [10 points] The board of B demanded to raise the offer to $14 per share in cash and no stock. Is this deal in the interest of the shareholders of A? (c) [10 points] The negotiation then progressed to an offer of $16 per share, $8 in cash and $8 in stocks. What would be the new exchange ratio x associated with this offer? Instructions: Answer all three questions on the blue book provided. You have 90 minutes to finish the test. At the end, please hand me the blue book and the sheet with questions. Please write as clearly as you can. If you believe you need to state assumptions, please do so clearly. Maximum score is 90/90. The exam is closed book but you can use a one-page (double-sided) crib sheet and a calculator. Question 1. (30 points) The boards of company A and B are negotiating an M&A deal. The current stock prices are: $10 per share for A and $12 per share for B. There are 9 million shares of A and 5 million shares of B outstanding. The boards expect the deal to generate synergies equal to $10 million in present value. Assume that the current market valuations of A and B are a good estimate of their true values as standalone entities. (a) [10 points] Initially, A offered $12 per share in cash and 0.2 shares of newly-issued shares of A for each share of B. What is the value of this offer for a target shareholder? (b) [10 points] The board of B demanded to raise the offer to $14 per share in cash and no stock. Is this deal in the interest of the shareholders of A? (c) [10 points] The negotiation then progressed to an offer of $16 per share, $8 in cash and $8 in stocks. What would be the new exchange ratio x associated with this offer
