Consider Two Firms,Bob Company and Cat Enterprises,both with Earnings of $10

question 77

Multiple Choice

Consider two firms,Bob Company and Cat Enterprises,both with earnings of $10 per share and 5 million shares outstanding.Cat is a mature company with few growth opportunities and a stock price of $25 per share.Bob is a new firm with much higher growth opportunities and a stock price of $40 per share.Assume Bob acquires Cat using its own stock and the takeover adds no value.In a perfect capital market,how many shares must Bob offer Cat's shareholders in exchange for their shares?

• A)1 share of BobCat for each share of Cat Enterprises
• B)0.625 shares of BobCat company for each share of Cat Enterprises
• C)1.6 shares of BobCat company for each share of Cat Enterprises
• D)0.3846 shares of BobCat company for each share of Cat Enterprises
• E)1.25 shares of BobCat company for each share of Cat Enterprises

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Definitions:

Lumen

The inside space of a tubular structure, such as a blood vessel or intestine.

Carotid Sinus

A dilated area at the base of the internal carotid artery that contains receptors to help regulate blood pressure.

Baroreceptors

Pressure-sensitive sensory neurons located mainly in the carotid sinus and aortic arch, which help regulate blood pressure.

Aortic Arch

The curved portion at the top of the aorta, which gives rise to the major arteries supplying the head, neck, and upper limbs.