Discuss the following: ii. Clientele effect and signaling hypothesis in dividend policy. b) Velcro Saddles is contemplating the acquisition of Pogo Ski Sticks, Inc. The values of the two companies as separate entities are $20 million (with 2,000,000 shares outstanding) and $10 million (with 1,000,000 shares outstanding), respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $500,000 next year and this reduction will increase at a constant rate of 5 per cent per year infinitely. Velcro saddles can either pay $12 million cash for Pogo or offer Pogo a 1-for-l equity swap (1 share of Pogo for 1 share of Velcro Saddles). If the appropriate discount rate is 15 per cent, a) What is the gain from the merger? b) What is the cost of the cash offer? c) What is the cost of the stock alternative? What is the maximum exchange ratio? d) What is the NPV of the acquisition under each alternative