Sol Company Has Announced Plans to Acquire Luna Corporation

question 58

Multiple Choice

Sol Company has announced plans to acquire Luna Corporation.Sol is trading for $210 per share,and has a premerger value of $22 billion,while Luna is trading for $145 per share and has a premerger value of $14 billion.The projected synergies from the merger are $1 billion.If the offer is for $8 billion in cash and the remainder in stock,what is the maximum exchange ratio that Sol could offer in the stock swap portion and still generate a positive NPV?

• A)0.81
• B)0.74
• C)0.72
• D)1.69
• E)1.55

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Definitions:

Production Supervisor

A professional responsible for overseeing the daily operations of manufacturing processes, ensuring that production goals are met efficiently and safely.

General Factory Use

This term pertains to overhead costs associated with the running of a factory that are not directly tied to specific production units but rather support general operations.

Job Order Cost System

An accounting system that accumulates costs by individual jobs or batches and is used when products or services are distinctly custom.

Raw Materials Inventory

The total amount of raw materials on hand that are waiting to be used in the production process.