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:

Sclera

White, fibrous, outer layer of the eyeball.

Sensory Adaptation

Change in the sensitivity of a receptor that usually makes the receptor less sensitive to its stimulus.

Proprioception

The sense of the relative position of one's own parts of the body and strength of effort being employed in movement.

Somatic Sensing

Somatic sensing involves the perception of bodily sensations, including touch, temperature, pain, and proprioception, integral to physical experiences.