How much should buyers offer to acquire the firm

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Question: An owner-manager of a firm is contemplating selling it to any one of a number of prospective buyers. The firm has net operating loss carryforwards (NOLs) known to be worth $50 million more to the buyers than to the seller. Whereas the current owner knows the value of the firm, the prospective buyers are uncertain whether the firm is worth $500 million (including the extra $50 million value in NOLs) or $700 million. The poorly informed buyers consider both possibilities to be equally likely.

Required: a) How much should buyers offer to acquire the firm?

b) Will the seller always accept the highest rational offer made?

c) How does the analysis change if the uncertain values of the firm are $500 million and $540 million rather than $500 million and $700 million?

Reference no: EM132027248

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