KK is planning to acquire LZ. Both corporations are unlevered. After the acquisition, KKs annual cash flow is expected to increase by $2,500 indefinitely. The appropriate discount rate of the combined firm will be 10%. KK proposes two acquisition offers to LZ:

Cash offer: Acquire LZ by $25 per share

Stock offer: Issue 1 unit of its shares for every 2 units of LZs share

Additional Information (before acquisition):

	KK	LZ
Share price	$30	$20
Shares outstanding	2500	1000

(a) If LZ is willing to be acquired with the cash offer, what is the NPV of the merger to KK? (5 marks)

(b) If LZ is agreeable to the stock offer, what is the NPV of the merger to KK? (6 marks)

(c) Which acquisition offer should KK choose?