Umida Ltd is considering acquiring Trinity Ltd. Both companies are all-equity fi rms. Umida and Trinity have 5million and 6 million shares outstanding respectively. Umida generates $2 million in annual cash fl ows, whileTrinity generates $2.5 million in cash fl ows annually. These cash fl ows are expected to remain constantperpetually. The risk-free rate is 2%. Umida has a beta of 1.2 and a cost of capital of 11.60%. Trinitys beta is 1.4.After the takeover, Umidas annual cash fl ow is expected to increase to $3 million per annum in perpetuity and itsbeta will be 1.4, while Trinitys perpetual cash fl ow reduces by 0.5and beta remains the same after the takeover.

a) Calculate the synergy of the takeover. (2 marks)

b) What is the price per share at which Trinity represents a zero net present value investment to Umida? (2marks)

c) If Umida off ers $20 m in cash for Trinity, calculate the gains to shareholders of both fi rms. (2 mark)

d) If the deal is settled with Umida swapping 8 Umida shares for 9 Trinity shares, calculate the new Umida shareprice after the deal, and the NPV of the deal for shareholders of both companies. (2 marks)