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

Recognize how exchange rates affect the price of goods in different currencies.

Explain how specialization and trade enable countries to consume beyond their production possibilities.

Analyze the impact of changes in exchange rates on trade balances.

Understand the concept of terms of trade and how they are determined.

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Definitions:

Investor Model

A framework or plan that outlines how investors can fund businesses or projects expecting profitability.

Crowdfunders

Individuals who financially support projects, causes, or businesses through crowdfunding platforms, often in exchange for rewards, equity, or nothing at all.

Equity

Ownership interest in a company or property, representing a share of the value after debts are subtracted.

Manufacture Prototypes

The process of creating early models or samples of a product to test its functionality, design, and feasibility.