Barlow Manufacturing has announced plans to acquire Hull Enterprises.Barlow is trading for $31.50 per share and has a premerger value of $12 billion,while Hull is trading for $21.75 per share and has a premerger value of $4 billion dollars.If the projected synergies from the merger are $675 million,what is the maximum exchange ratio that Barlow could offer in a stock swap and still generate a positive NPV?

Question

Quizplus · Accepted Answer

The correct answer is A because the maximum exchange ratio that Barlow could offer in a stock swap and still generate a positive NPV is 0.807. This is calculated by dividing the premerger value of Hull by the premerger value of Barlow, and then adding the projected synergies from the merger. The result is the maximum exchange ratio that Barlow could offer and still generate a positive NPV.

Barlow Manufacturing Has Announced Plans to Acquire Hull Enterprises