Kaplan Ltd is contemplating the acquisition of Baron Incorporation. The values of the two companies as separate entities are GHC30 million and GHC 10 million, respectively. Kaplan estimates that by combining the two companies, it will reduce marketing and administration cost by GHC700,000 per year in perpetuity. Kaplan can either pay GHC15 million cash for Baron Inc or offer Baron a 50% holding in the combined firm. The opportunity cost of capital is 10%.

Required:

1. What is the gain from merger? (3 marks)
2. What is the cost of the cash offer? (3 marks)
3. What is the cost of the stock offer? (3 marks)
4. What is the NPV of the acquisition under the cash offer? (2 marks)
5. What is the NPV under the stock offer? (2 marks)

Discuss four (4) defense mechanisms that target firms to should be allowed to put in place to resist possible takeovers. (2 marks)