Fly$-$By Night Couriers is analyzing the possible acquisition of Flash$-$in$-$the$-$Pan Delivery. Neither firm has debt. The forecasts of Fly By$-$Night show that the purchase would increase its annual aftertax cash flow by $$345,000$ indefinitely. The current market value of Flash$-$in$-$the$-$Pan is $$8\mathrm{.}1$ million. The current market value of Fly$-$By$-$Night is $$19$ million. The appropriate discount rate for the incremental cash flows is $8$ percent. Fly$-$By$-$Night is trying to decide whether it should offer $35$ percent of its stock or $$11\mathrm{.}5$ million in cash to Flash$-$in$-$the$-$Pan.

a$.$ What is the synergy from the merger?

$$b$.$ What is the value of Flash$-$in$-$the$-$Pan to Fly$-$By$-$Night?

$$c$.$ What is the cost to Fly$-$By$-$Night of each alternative?

$$d$.$ What is the NPV to Fly$-$By$-$Night of each alternative?

$$e$.$ What alternative should Fly$-$By$-$Night use?Input Area:

Fly$-$By Night Couriers is analyzing the possible acquisition of Flash$-$in$-$the$-$Pan

Delivery. Neither firm has debt. The forecasts of Fly By$-$Night show that the purchase

would increase its annual aftertax cash flow by $$345,000$ indefinitely. The current

market value of Flash$-$in$-$the$-$Pan is $$8\mathrm{.}1$ million. The current market value of Fly$-$By$-$

Night is $$19$ million. The appropriate discount rate for the incremental cash flows is $8$

percent. Fly$-$By$-$Night is trying to decide whether it should offer $35$ percent of its stock

or $$11\mathrm{.}5$ million in cash to Flash$-$in$-$the$-$Pan.

a$.$ What is the synergy from the merger?

b$.$ What is the value of Flash$-$in$-$the$-$Pan to Fly$-$By$-$Night?

c$.$ What is the cost to Fly$-$By$-$Night of each alternative?

d$.$ What is the NPV to Fly$-$By$-$Night of each alternative?

e$.$ What alternative should Fly$-$By$-$Night use?