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 AC. 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

To calculate the exchange ratio, we need to divide the market value of V by the market value of A. That is:
450 / 375 = 1.20
However, the exchange ratio is based on the number of shares swapped, not the overall market value. V offers 80 shares for A's 40 shares, so the exchange ratio is:
80 / 40 = 2.00
So, the exchange ratio is 2.00:1.00. 
To check if this is a good deal for both companies, we can calculate the combined market value of the two companies after the merger:
100 shares of V at $450 each = $45,000
40 shares of A at $375 each = $15,000
Total market value = $60,000
However, V believes that the combination of VA is worth $925, which is less than the calculated market value. This suggests that the merger may not be a good deal for V shareholders. 
Therefore, the best choice is (C) 1.37:1.

What Is the Market Value Exchange Ratio of V Acquiring