Crocodile Ltd is considering the acquisition of Shark Finance. The values of the two companies as separate entities are $10 million and $5 million, respectively. Crocodile estimates that by combining the two companies it will reduce selling and administrative costs by $250,000 per annum in perpetuity. Crocodile can either pay $7 million cash for Shark or offer Shark a 50 percent holding in Crocodile. If the opportunity cost of capital is 10 percent per annum:

a. What is the gain, in present value terms, from the merger?

b. What is the net cost of the cash offer?

c. What is the net cost of the share alternative?

d. What is the NPV of the acquisition under: i) The cash offer? ii) The share offer?