Velcro Saddles is contemplating the acquisition of Pogo Ski Sticks, Inc. The values of the two companies

Question:

Velcro Saddles is contemplating the acquisition of Pogo Ski Sticks, Inc. The values of the two companies as separate entities are $20 million and $10 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $500,000 per year in Velcro Saddles is willing to pay $14 million cash for Pogo or offer pogo a 50% holding to Velcro saddles. The opportunity is 10%
a. What is the gain from merger?
b. What is the cost of the cask offer?
c. What is the cost of the stock alternative?
d. What is the NPV of the acquisition under the cask offer?
e. What is its NPV under the stock offer?

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