JohnCo is buying SamCo using a mix of cash and shares. They will be paying $3M in cash, and the remainder in equity in the merged firm. JohnCo currently has a market value of $85M, and SamCo has a market value of $11M. Purchasing SamCo will allow JohnCo to do a project with no upfront costs that will produce an EBIT of $700,000 each year for the foreseeable future, and will also produce a single lump sum cash flow of $2.5M ten years from today. The tax rate is 32% and the riskless rate is 2%. SamCo is 60% debt financed and 40% equity financed, has an unlevered cost of equity of 8% and a cost of debt of 5%. JohnCo has 100,000 shares outstanding.

a) What is SamCos weighted average cost of capital?

b) What is the NPV of the synergies of this merger?

c)What price should JohnCo pay for SamCo if they are willing to offer SamCos shareholders half of the synergies?

d) How many shares should JohnCo offer SamCos shareholders in payment, taking into account the $3M in cash they are paying?