Answer
EDIT: Nevermind read it wrong pay no attention
Company B's EV is $50 per share if it's worth the spectrum of 0-100 if no price is more likely then any other.
Company A's EV after take over is $75 per share with the spectrum of 0-150.
B will accept A's offer if it's more then their current price.
Therefore A will offer the smallest amount over 50 they can and wind up with a profit of slightly under $25/share.
I have no idea how people got 0, as i assume we're talking about expected not guarenteed profit. If there is some risk aversion in either company that will effect the outcome, but i don't see that in the problem.
|