1. Fly-by-Night Couriers is analyzing the possible acquisition of Flash-in-the-Pan Restaurants. Neither firm has any debt. The forecasts by Fly-by-Night show that the purchase would increase total annual after-tax cash flows by $600,000 indefinitely. The current market value of Flash-in-the-Pan is $10 million. The current market value of Fly-by-Night is $35 million. The appropriate discount rate for any change in cash flows from the merger is 8 percent.

1. What is the total synergy gain from this merger?
2. What is the most that Fly-by-Night would be willing to pay for Flash-in-the-Pan? Fly-by-Night is trying to decide whether it should offer 25 percent of its stock or $15 million in cash for Flash-in-the-Pan.
3. What is the NPV to Flash-in-the-Pan of each alternative?
4. What is the NPV to Fly-by-Night of each alternative?
5. Which of these alternative will Fly-by-Night prefer?