Firm A is considering the acquisition of Firm B. For Firm A, PV = $2000, N = 100. For Firm B, PV = $1000, N = 50. Proforma financial information for Firm AB is below. The discount rate for Firm AB is 15%. After year 20, cash flows from year 20 will grow at 3% forever. The tax rate is 40%.

Firm AB	Years 1-5	Year 6	Years 7-13	Year 14	Years 15-20
Sales	2000	2400	3000	3000	4000
Depreciation	200	200	150	150	180
EBIT: 40% of Sales
Interest	60	60	70	70	10
Capital Expenditures	0	600	0	700	0
Increases in Working Capital: 10% of changes in sales invest the period before the sales increase
Principal Payment	0	0	0	1000	0

a. Calculate the PV of AB, rounding the the nearest whole number.

b. Suppose the owners of B ask for a time 0 cash payment of $1500. If A accepts, what will the split of the GAIN be (in dollars)?

c. Suppose the owners of B ask for an exchange of common shares, and they want to have a 25% ownership in the merged firm. What would the COST and NPV be? What exchange ratio are the B owners requesting?

d. Supposed A agrees to the split of the GAIN in part c, but only wants to give B a 20% ownership. How much time 0 cash must now be offered, with the 20% ownership, to achieve the same split as in part c?

e. Suppose A agrees to the split of the GAIN in part c, but wants to pay with shares of preferred stock. The preferred will have a $1.50 per share dividend and the market requires an 8% return on preferred stock. How many preferred stock shares would A have to give B?