What is the market value exchange ratio of V acquiring A in a merger? V is worth $450 and has 100 shares outstanding. A has a market value of $375 and has 40 shares outstanding. V to acquire A will swap 80 shares of V for the 40 shares of A. V believes the combination of VA was worth $925.
A) 1:1
B) 1.20:1
C) 1.37:1
D) 1.10:1

Question

Quizplus · Accepted Answer

The market value exchange ratio is calculated by dividing the market value of the acquiring company (V) by the market value of the target company (A). In this case, the market value of V is $450 and the market value of A is $375. Therefore, the market value exchange ratio is $450/$375 = 1.20:1. However, the question states that V will swap 80 shares for 40 shares of A, which implies an exchange ratio of 2:1. This is different from the market value exchange ratio of 1.20:1. The difference between the two exchange ratios is due to the fact that V believes the combination of VA is worth $925. This implies that V believes that the combined company will be worth more than the sum of the two individual companies. As a result, V is willing to pay a premium for A's shares.

What Is the Market Value Exchange Ratio of V Acquiring