Given Information:

- X Corporation is considering acquiring Y Corporation.

- Neither corporation has any debt.

- X Corporation expects the acquisition of Y Corporation will generate synergy equal to $1 million per year in after-tax cash flow, indefinitely (a perpetuity).

- X Corporation's current market value is $65 million.

- Y Corporation's current market value is $35 million.

- The appropriate discount rate, based on the risk of Y Corporation, is 10%.

- X Corporation needs to decide between offering 40% of its stock or $40 million in cash to Y Corporation's shareholders.

a) What is the cost of the stock offer? (Hint: First calculate the value of the target to the acquirer.)

b) What is the cost of the cash offer?

c) What are the NPVs of the stock offer and of the cash offer?

d) Which alternative should X Corporation pursue?

*Please show your work as best as possible including formulas used, Thank you.*