Answer:
Explanation:
a. If you trigger the poison pill, then you own 15% of the company, or 1,200,000 shares = (15% × 8,000,000 shares). When you trigger the poison pill, every other shareholder will buy a new share for every share they hold, so 6,800,000 shares = (8,000,000 –1,200,000) will be issued. These shares will be issued at $18, which is 80% of the price immediately before triggering the poison pill (which we assume stays constant at $40).
b. After the new 6,800,000 shares are issued, there will be a total of 14,800,000 shares = (8,000,000 + 6,800,000). You will own 1,200,000 of them, so your participation will be 8.11% = (1,200,000/ 14,800,000).
c. When the poison pill is triggered, the market value of the firm will increase to $442,400,000 million [= ($40 × 8,000,000) + ($18 × 6,800,000)]. The new stock price will be $29.89 = ($442,400,000 million/14,800,000).
d. You lose from triggering the poison pill (you bought shares at $40 that are now worth $29.89).
