The NFF Corp. has announced plans to acquirer LE Corp. NFF is trading for $35 per share and LE is trading for $25 per share, implying a pre-merger value of LE of approximately $4 billion. If the projected synergies are $1 billion, what is the maximum exchange ratio NFF could offer in a stock swap and still generate a positive NPV?

Optival’s stock is currently trading at $60 per share with a historical volatility of 20%. The risk-free rate is 4%. Consider a European call and put option on Optival’s stock with an exercise price of $55 that expires in 2 years. Use excel or a similar program to determine the option price using the Black-Scholes formula.   (a): What is the value the European call and put option on Optival’s stock with a strike price of $60?  (b): To the nearest cent, how much does the option value change for the following adjustments to the input values:  ∆ in Call Value ∆ in Put Value  ↑ stock price by $1 to $61  ↑ strike price by $1 to $56  ↑ the rF by 1% to 5%  ↑ volatility by 1% to 21%  ↑ time to maturity by 1 yr  (c): Why does the value of the call increase by less than $1 when the stock price increases by $1?  (d): To the nearest percent and holding all else constant, how high would the risk-free rate need to be for a 1 year increase in time to maturity to have a negative impact on the value of…

Consider the following two merger candidates. The merger is for diversification purposes only with no synergies involved. Risk-free rate is 4%. Market value of assets Face value of zero coupon debt Company A $900 $900 4 years Debt maturity Asset return standard deviation The asset return standard deviation for the combined firm is 20%. How much more value will debtholders collectively receive after the merge(keep two decimal places)? 50% Company $800 $800 4 years 50%

EMU is in a bidding war with WMU to acquire Ypsi. Ypsi stocks are currently trading at $65/share • WMU has already made an offer of $75 • The intrinsic value of Ypsi to EMU is $95 What bidding option is reasonable? Nothing--current bid of $75 is already too high compared to the market price of $65 Offer at least $95 to defeat WMU Bid between $65 and $75--not to go over your head and loose shareholder values Bid between $75 and $95--it still is a good value!