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 $370,000 indefinitely. The current market value of Flash-in-the-Pan is $9 million. The current market value of Fly-By-Night is $23 million. The appropriate discount rate for the incremental cash flows is 8 percent. Fly-By-Night is trying to decide whether it should offer 35 percent of its stock or $13 million in cash to Flash-in-the-Pan.

a.What is the synergy from the merger?(Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

b.What is the value of Flash-in-the-Pan to Fly-By-Night?(Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

c.What is the cost to Fly-By-Night of each alternative?(Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567.)

d.What is the NPV to Fly-By-Night of each alternative?(Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567.)

e.Which alternative should Fly-By-Night use?

multiple choice

• Cash offer
• Stock offer