Question $3$

Company $Ax$ is considering the acquisition of Company $Bx$ and intends to finance this

potential acquisition using only retained cash.

Consider the information in Table $3$ about Companies AX and BX$,$ expected synergies

from the acquisition and price asked by Company BX$\text{'}$s shareholders to sell their company.

Table $3$

To answer the following questions, make plausible assumptions if necessary.

a$.$ What is the expected combined value after acquisition? Explain your answer.

$[5$ marks$]$

b$.$ Should $Ax$ acquire BX by $390?$ Explain your answer.

$[10$ marks$]$

c$.$ Consider the scenario where Company $Ax$ decides to finance the acquisition with

equity instead of cash. What would be the optimal exchange ratio of Company $Ax$

versus Company BX shares? Explain your answer.