Ghana Cocoa proposes to acquire Adipa Cocoa.The market value of Ghana Cocoa is Gh 400 million whilst the market value of Adipa Cocoa is Gh 100 million. The merger is expected to produce savings of Gh 5,000,000 a year in perpetuity. These savings are expected to grow at 5% a year. Ghana Cocoa has proposed to pay GH 180 million to acquire Adipa Cocoa. The payment is expected to be made in 2 years. Ghana Cocoa's cost of capital is given as 30% whilst Adipa Cocoa's cost of capital is given as 25%. Instead of a cash offer, Ghana Cocoa proposes to offer 30 million shares to shareholders of Adipa Cocoa. Ghana Cocoa has 100 million shares outstanding whilst Adipa Cocoa also has 100 million shares outstanding.

(Discount all CFs with the discount rate of the target company)

a. Cal. the present value of the anticipated merger gains

b. How much of the merger gains accrue to the shareholders of Adipa Cocoa?

c. What is the NPV of the merger to shareholders of Ghana Cocoa?

d. What is the value of the combined assuming the merger takes place?

e. What is the cost of the stock offer to shareholders of Ghana Cocoa?

f. What is the NPV of the stock offer to shareholders of Ghana Cocoa?

g. Advise the management of Ghana Cocoa as to whether they should complete the acquisition deal using a stock or cash offer.