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 $8.1 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 $11.5 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. Which alternative should Fly-By-Night use?