ABC Corporation is considering the acquisition of total company the market values of the two companies as separate entities are 40 million and 15 million respectively ABC's Financial managers estimate that by combining the two companies it will reduce it and administrative costs by $800,000 per year for the next 15 years ABC would either pay 18 million cash for Togo's or offer Todo a 30% holding in the new combined firm if the opportunity cost of capital is 12%

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Type 2D: ABC Inc. in considering the acquisition of Togo Company. The market values of the two companies as separate entities are $40 million and $15 million, respectively. ABC's financial managers estimate that by combining the two companies, it will reduce IT and administrative costs by $800,000 per year for the next 15 years. ABC would either pay $18 million cash for Togo or ofter Togo a 30% holding in the new combined firm. the opportunity cost of capital is 12, a) What is the gain from merger? b) What 13 the cost of the cash ofter? c) What is the cost of the stock alternative? d) What is the NPV of the acquisition under the cash ? e) What is the NPV under the stock ofter