A large tech company, is considering making an offer to purchase Shaan Inc., a smaller network company. Both firms are all equity financed. You have collected the following information on the two companies as of the end of the current year:

	Nadia	Shaan
Price-earnings ratio	8	6
Shares outstanding	500,000	220,000
Earnings	$1,500,000	$440,000

Company currently pays out an annual dividend of $0.80 per share. Security analysts expect that, with its current stand-alone operations, Shaans annual dividends per share would grow perpetually at 5% per year. However, Nadias management believes that the acquisition of Shaan would open up some new growth opportunities that would result in 7% perpetual annual growth of Shaans dividends per share.

1. What is the post-acquisition value of Shaan to Nadia?

2. If Nadia were to offer $15 cash for each share of Shaan, what would be the per-share price of Nadia after its acquisition of Shaan?

3. What would be the per-share price of Nadia if it were to acquire the outstanding stock of Shaan with a shares-exchange ratio of 1:5 (i.e. 1 share of Nadia for every 5 shares of Shaan)?

4. At what shares exchange ratio would shareholders of Shaan be indifferent between stock-financed acquisition or cash-financed acquisition?