Fly-By-Night Couriers is analyzing the possible acquisition of Flash-in-the-Pan Restaurants. Neither firm has debt. The forecasts of Fly-By-Night show that the purchase would increase its annual aftertax cash flow by $340,000 indefinitely. The current market value of Flash-in-the-Pan is $9 million. The current market value of Fly-By-Night is $19 million. The appropriate discount rate for the incremental cash flows is 8 percent. Fly-By-Night is trying to decide whether it should offer 40 percent of its stock to Flash-in-the-Pan.

a) What is the synergy from the merger?

b)What is the value of Flash-in-the-Pan to Fly-By-Night?

c)What is the cost to Fly-By-Night of cash

d)What is the cost to Fly-By-Night of stock

e)What is the NPV of cash

f)What is the NPV of stock