AEROFOAM TECHNOLOGY ’s board believes that acquiring the production facilities of LIGHT PLASTICS, instead of building and equipping their own, would save the company €50 million in capital costs and would enable it to meet the increased demand for its products. The PV of the merger benefits from increased production and sales is estimated to be €15 million. An expected €3.5 million could be realized from unneeded assets but expenditure of €18 million would be required to close some operations. All figures are after tax.

(a) Ignoring opportunity costs and transaction costs, what is the maximum premium that can be paid on LIGHT PLASTICS share price, given that there are 5 million shares outstanding, and the current price is €50 per share?

(b) What would be the effect on the premium if opportunity costs and transaction costs total €30 million after tax?