Gobi Desserts is bidding to take over Universal Puddings. Gobi has 3,000 shares outstanding, selling at R50 per share. Universal has 2,000 shares outstanding, selling at R17.50 a share. Gobi estimates the economic gain from the merger to be R15,000.

Please answer the following:

a. If Universal can be acquired for R20 a share, what is the NPV of the merger to Gobi?

b. What will Gobi and Universal sell for when the market learns that it plans to acquire Universal for R20 a share? Also calculate the percentage gains to the shareholders of each firm?

c. Now suppose that the merger takes place through an exchange of stock. On the basis of the premerger prices of the firms, Gobi sells for R50, so instead of paying R20 cash, Gobi issues .40 of its shares for every Universal share acquired. What will be the stock price of the merged firm?

d. What is the NPV of the merger to Gobi when it uses an exchange of stock? Why does your answer differ from part (a)?