Suppose that Firm X has 1 million shares outstanding, valued currently at $20 per share. A "raider" has recently acquired 100,000 shares, paying the market price for those shares. The announcement of this acquisition triggers Firm X's poison pill, which works as follows: (1) Every share has a warrant attached to buy a newly created share at $500 per share, and (2) if any single party acquires at least a 10% stake in the company, all shareholders except the one that triggered the pill can exercise their warrants at a price equal to 40% of the market price.

 

1) What is the total firm value after the poison pill is triggered?

 

2) What is the share price after the poison pill is triggered and executed?

 

3) What is the value of the raider's stake in the company after the poison pill is triggered and executed?