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

First, we need to find the market value per share for each company:
- V: $450 / 100 shares = $4.50 per share
- A: $375 / 40 shares = $9.375 per share

Next, we need to compare the market value exchange ratio with the market value ratio of the two companies:
- Market value exchange ratio: 80 shares of V for 40 shares of A, or 2:1
- Market value ratio: (100 shares of V x $4.50) / (40 shares of A x $9.375) = 1.36:1

Since the market value exchange ratio is higher than the market value ratio, V is overvaluing A. Therefore, the best choice is the one that is closest to the market value ratio:
- Choice C: 1.37:1, which is very close to the market value ratio of 1.36:1.

What Is the Market Value Exchange Ratio of V Acquiring