What is the synergy from the merger

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Fly-By-Night Couriers is analyzing the possible acquisition of Flash-in-the-Pan Restaurants. Neither firm has debt. The forecasts of Fly-By-Night show that the purchase would increase its annual aftertax cash flow by $310,000 indefinitely. The current market value of Flash-in-the-Pan is $7 million. The current market value of Fly-By-Night is $16 million. The appropriate discount rate for the incremental cash flows is 10 percent. Fly-By-Night is trying to decide whether it should offer 35 percent of its stock or $10 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? (Do not round intermediate calculations)

$ Cost of cash ?

$ Cost of stock ?

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

NPV of cash?

NPV of stock?

Reference no: EM132577993

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