BigCo is buying LittleCo, BigCo has a share price of $40 and 600,000 shares outstanding. LittleCo has a share price of $28 and 300,000 shares outstanding. All firms are 100% equity financed. LittleCos cost of equity is 18%. This merger will allow for a project with an initial cost of $5M and EBIT of $1.5M for 8 years, growing at 4% per year. The corporate tax rate is 22%.

a. What is the net present value of the synergies from this merger? (10 points)

b. BigCo is paying entirely in shares and is offering LittleCos shareholders 30% of the synergies of the merger. How many shares should BigCo issue to compensate LittleCos shareholders? (10 points)