Colourmatics, a specialist printer of coloured fabrics, posters etc. is considering acquiring Alliance Printers, a small family-owned business that specialises in printing on unique materials. Alliance Partners is currently financed with a debt-to-equity ratio of 0.25 and the market value of the firms assets is estimated to be R8 million. Colourmatics believes that acquiring Alliance Printers will enable them to serve a wider spectrum of markets by combining their unique capabilities. The manager of Colourmatics estimates that the increased sales as a consequence of the merger will be R900 000 in perpetuity. In addition to this, the manager also believes that the operating cash flows of Alliance Printers will be increased by R500 000 per annum for the next five years, and R300 000 per annum for the five years thereafter due to improved operating efficiency. However, Colourmatics will have to train their staff to be able to use the machines of Alliance Printers and this will cost R150 000 per annum for three years. Colourmatics will continue to pay tax at a rate of 33% and their cost of equity for an investment of this risk is 15%. The current market value of Coulourmatics equity is R42 million and the shares are trading at a price of R35. Colourmatics is considering paying for the acquisition either with cash of R10 million or by offering 250 000 shares in the joint company. a) Calculate the total value of the synergies arising from the acquisition. b) Calculate the NPV of the acquisition if Colourmatics purchases with cash. c) Calculate the NPV of the acquisition if Colourmatics purchases with stock. d) Based on your answers to part b and c, should Colourmatics proceed with the acquisition, and if so which method of payment is preferable?