Facebook Inc., is considering making an offer to purchase WhatsApp Corp. Facebooks vice president of finance has collected the following information:

Price-earnings ratio Shares outstanding Earnings Dividends Facebook 14.5 $1,500,000 $4,200,000 $1,050,000 WhatsApp 10 $750,000 $960,000 $470,000 Facebook also knows that securities analysts expect the earnings and dividends of Facebook to grow at a constant rate of 4 per cent each year. Plant management believes that the acquisition of WhatsApp will provide the frim with some economies of scale that will increase this growth rate to 6 per cent per year. (i) What is the value of WhatsApp to Facebook? (6 marks) (ii) What would Facebook's gain be from this acquisition? (2 marks) (iii) If Facebook offers $20 in cash for each share of WhatsApp, what would the NPV of the acquisition be? (2 marks) (iv) What is the most Facebook should be willing to pay in cash per share for the stock of WhatsApp? (2 marks) (v) If Facebook were to offer 225,000 units of its shares in exchange for the outstanding stock of WhatsApp, what would the NPV be? (4 marks) (vi) Should the acquisition be attempted? If so, should it be cash acquisition or share acquisition? (2 marks) [Total: 30 marks] Price-earnings ratio Shares outstanding Earnings Dividends Facebook 14.5 $1,500,000 $4,200,000 $1,050,000 WhatsApp 10 $750,000 $960,000 $470,000 Facebook also knows that securities analysts expect the earnings and dividends of Facebook to grow at a constant rate of 4 per cent each year. Plant management believes that the acquisition of WhatsApp will provide the frim with some economies of scale that will increase this growth rate to 6 per cent per year. (i) What is the value of WhatsApp to Facebook? (6 marks) (ii) What would Facebook's gain be from this acquisition? (2 marks) (iii) If Facebook offers $20 in cash for each share of WhatsApp, what would the NPV of the acquisition be? (2 marks) (iv) What is the most Facebook should be willing to pay in cash per share for the stock of WhatsApp? (2 marks) (v) If Facebook were to offer 225,000 units of its shares in exchange for the outstanding stock of WhatsApp, what would the NPV be? (4 marks) (vi) Should the acquisition be attempted? If so, should it be cash acquisition or share acquisition? (2 marks) [Total: 30 marks]