Best Foods, which has 1.2 million shares outstanding, wishes to merge with Good Drinks with 0.5 million shares outstanding. The market prices for Best Foods and Good Drinks are $49 and $18 per share, respectively. The merger could create an estimated savings of $800,000 annually for the indefinite future. If Best Foods were willing to pay $25 per share for Good Drinks, and the appropriate cost of capital is 14 percent, what would be the:

i) Present value of the merger gain or synergy?

ii) Cost of the cash offer?

iii) NPV of the cash offer?

iv) Break-even cash offer?

2) What would be the NPV if same offer is made for exchange of stock?

3) What should be the main objective of the management while considering a merger?