Precision Controls is a Minnesota-based manufacturer of electronic control devices. To enhance its product line, Precision would like to establish an artificial intelligence research group, either through internal development or, preferably, by merging with or acquiring a firm that has strong artificial intelligence capabilities. Automated Intelligence Corp. (AIC), a New York-based research and development firm specializing in artificial intelligence, is an attractive candidate for a merger. For accounting reasons, a merger--if it is to take place--must be accomplished through an exchange of shares. It is up to representatives of both companies to negotiate a mutually agreeable ratio at which all of the shares of AIC can be exchanged for shares of Precision. A rewritten version of an earlier case.