Company A plans to acquire company B by making a full cash offer of $200 million

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Company A plans to acquire company B by making a full cash offer of $200 million. Company A is also considering a stock exchange offer of .78125 share of A for one share of B. The transaction is expected to realize an expected synergy of $80 million. Additional company-specific information is provided in the table below.

	Company A	Company B
Total Market Value ($ million)	400	150
Number of Shares	25	15
Price/Share	16	10

Please answer the following questions.

a)    What is the NPV of the acquisition if the cash offer is chosen? (6 marks)

b)    What is the post-acquisition stock price of company A if the cash offer is chosen? (4 marks)

c)    Is the exchange ratio of .78125 share of A for one share of B is optimal if the stock exchange offer is chosen? If not, at what rate should the exchange ratio be set so that shareholders will be indifferent between the cash and the share offer strategies? Show your results and related explanation. (10 marks)