Company Roxy is acquiring company BYE. Both the management finalized the transaction of $24 per share of company BYE, but now the mode of payment is a matter of negotiation. Which of the following alternative payment mode is beneficial for company BYE? It is expected that the economic cost saving of the merger is estimated to be $11 million per year in the future. The appropriate discounting rate is 12%.

a) Cash offer- $24 per share of company BYE

b) Stock offer- 0.7 shares of Company Roxy for each share of company BYE

Roxy BYE

Pre-merger stock price 26 21

Shares outstanding (million) 82 40

Pre-merger market value (million) 2000 850