Aussie Ltd is considering the acquisition of Kiwi Ltd. The values of the two companies as separate entities are $20 million and $10 million, respectively. Each firm has 2 million shares outstanding. Aussie estimates that by combining the two companies, it will reduce the selling and administrative costs by $150,000 p.a. in perpetuity with no change in risk. Assume the cost of capital for the new firm is 10% p.a.

QUESTION 10

If Aussie makes a cash offer of $5.50 per share for Kiwi, what is the net gain to Aussies shareholders?

	a.	$1 million
	b.	$1.5 million
	c.	$0.5 million
	d.	$0
	e.	None of the above