Essex Industries is considering the acquisition of the Twinsburg Company in a stock-for-stock exchange. The following financial data are available on both companies. (Assume no synergy is expected with this merger.) Calculate answers to nearest 0.001.

-Calculate the exchange ratio if Essex offers the Twinsburg stockholders a 20% premium over Twinsburg's current market price.
A)0.375
B)2.22
C)0.45
D)0.288

Question

Essex Industries is considering the acquisition of the Twinsburg Company in a stock-for-stock exchange. The following financial data are available on both companies. (Assume no synergy is expected with this merger.) Calculate answers to nearest 0.001.
 
-Calculate the exchange ratio if Essex offers the Twinsburg stockholders a 20% premium over Twinsburg's current market price.
A)0.375 
B)2.22 
C)0.45 
D)0.288

Quizplus · Accepted Answer

Effective price of Twinsburg = $24(1.2) = $28.80
Exchange ratio = $28.80/$64 = 0.45

Essex Industries Is Considering the Acquisition of the Twinsburg Company