Consider Two Firms, Bob Company and Cat Enterprises, Both with Earnings

question 3

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 share price of $40 per share. Assume Bob acquires Cat using its own shares 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)0.625 shares of BobCat company for each share of Cat Enterprises
• B)1 share of BobCat for each share of Cat Enterprises
• C)0.3846 shares of BobCat company for each share of Cat Enterprises
• D)1.6 shares of BobCat company for each share of Cat Enterprises

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An involuntary movement in infants where the hand closes around an object placed in its palm, a normal reflex indicating healthy neuromuscular development.

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