14. Merger Gains and Costs. As treasurer of Leisure Products, Inc., you are investigating the pos- sible acquisition of Plastitoys. You have the following basic data:

You estimate that investors currently expect a steady growth of about 6% in Plastitoys's earn- ings and dividends. You believe that Leisure Products could increase Plastitoys's growth rate to 8% per year, without any additional capital investment required. (LO2)

a. What is the gain from the acquisition?

b. What is the cost of the acquisition if Leisure Products pays $25 in cash for each share of Plastitoys?

c. What is the cost of the acquisition if Leisure Products offers one share of Leisure Products for every three shares of Plastitoys?

d. How would the cost of the cash offer and the share offer alter if the expected growth rate of Plastitoys were not increased by the merger?

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Forecast earnings per share Forecast dividend per share Number of shares Stock price Leisure Products Plastitoys $5 $1.50 $3 $.80 1,000,000 600,000 $90 $20