Smallville Incs assets have always been financed with 40% debt and 60% equity.

Largeville Corp is considering either acquiring Smallvilless common shares or its assets.

Given the following information: purchase price of share $120

per share book value of assets $80 per share equivalent book value of share $50 per share

corporate tax rate 35% individual tax rate 25%

1.The net proceed to Largevilles shareholders if the deal is a stock acquisition on a per share basis is:

The net proceed to Boltons shareholders if the deal is a stock acquisition on a per share basis is:

a.

92.5

b.

104.5

c.

102.0

d.

103.5

e.

102.5

2. For an asset acquisition, if one assumes that the purchase price is $ X per share equivalent, then the net proceeds after paying corporate tax is:

a.

$ 0.51X + 28

b.

$ 0.49X +28

c.

$ 1.4X - 80

d.

$ 0.38X +34

e.

none of the above

3. The asset purchase price offered so that the Bolton shareholders would be indifferent to either type of purchase is:

a.

$ 80

b.

$ 100

c.

$ 120

d.

$ 140

e.

$ 180