Suppose firms B and T have values as separate entities of $500 million and $100 million, respectively. They are both all-equity firms. If firm B acquires firm T, the merged firm will have a combined value of $700 million due to synergies of $100 million. Firm B has 25 million shares outstanding and firm T has 10 million shares outstanding.

a. If the board of firm T indicates that it will sell firm T if it is offered $150 million in cash, should firm B acquire firm T?

b. Suppose firm B exchanges 7.5 million of its shares for the entire 10 million shares of firm T. Should firm B acquire firm T?

c. If the merger is stock financed, what should the exchange ratio be for it to cost the bidder exactly $150 million to purchase the target? d. At what exchange ratio will the NPV of the transaction equal zero for the bidder if the merger is stock financed?