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Warren Milken is attempting to take over Biotech Corporation. The worth of Biotech depends on the success or failure of several drugs under development. Warren does not know the actual (per share) worth of Biotech, but the current owners of Biotech do know the actual worth of the company. Warren assumes that Biotech's actual worth is between $50 and $100 per share, with the most likely value around $60. Biotech will accept Warren's offer if it exceeds the true worth of the company. For ex, if the current owners think Biotech is worth $60 per share and Warren bids $70 per share, they will accept the bid. If the current owners accept Warren's bid, then Wanen's corporate strengths immediately increase Biotech's market value by 200% (that is, tripled). How much should Warren bid to maximize his expected profits?

Basic Finance, Finance

  • Category:- Basic Finance
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