Question 8)

Growth Co wants to acquire Value Co. The synergistic benefits from the acquisition are expected to be $2 million. Value Cos pre-bid share price is $4 and its number of shares outstanding is 1 million. What is the maximum price that Growth Co can offer to Value Co?

Group of answer choices

a) None of the other answers is correct.

b) $6

c) $7

d) $9

e) $8

Question 9)

The government is selling houses to low-income families, which you are eligible to buy at $500,000 today. It will take 2 years to build the house, after which you will rent out the house. If the demand for rentals is high, you will be able to rent the house at an annual rent of $50,000 per year in perpetuity. If the demand is low, you will be able to rent the house at an annual rent of $20,000 per year in perpetuity. The likelihood that the demand is high is 60% and the likelihood that the demand is low is 40%. You will know whether there is a high or low demand for rentals after the house is built. The annual rent is payable at the end of the year. Your required rate of return is 5%. To encourage participation, the government provides an option to sell the house back to the government at $500,000 immediately after the house is built. What is the value of this option? (Round to the nearest dollar)

Group of answer choices

a) $36,281

b) $27,662

c) $33,874

d) $30,419

e) None of the other answers is correct.