Given the following information:

	Firm B (Bidder)	Firm T (Target)
Number of shares	8,000	5,000
Price per share ($)	40	30
Debt ($)	150,000	120,000

Once the transaction is completed, then Firm T (operating as a standalone company) can generate annual cash flows of $ 38,000 for the initial 2 years, with the first cash flow taking place immediately, followed by perpetual annual flows of $ 28,000.

Firm T, realizing the very attractive synergy, will not accept any offer with less than 50% premium. Assume the discount rate used to be 12%.

Q1

What is the value of the synergy in PV terms?

a. $ 270,260

b. $ 300,520

c. $ 250,260

d. $ 280,260

e. $ 310,520

Q2

What is the NPV of this transaction?

a. $ 85,260

b. $ 75,520

c. $ 205,260

d. $ 205,460

e. $ 225,260