Mediaworks is considering an acquisition of QMS media Ltd. PWC consultants contracted by Mediaworks have gathered the following information.

	MEDIAWORKS	QMS MEDIA LTD
SHARES OUTSTANDING	2,000,000	600,000
EARNINGS	$10,000,000	2,600,000
P/E RATIO	22	15
DIVIDENDS PER SHARE	$5.50	$1.50
DIDVEND GROWTH RATE	2.5%	4%

Mediaworks believes that if it acquires QMS media Ltd, then QMSs dividend growth would increase to 4.5%, due to increased efficiencies. What is the synergy gain of acquisition? (4)

$11,500,000

$11,000,000

$9,500,000

$10,500,000

What is the NPV of the acquisition for Mediaworks if it offers a cash payment of $X for every QMS share? (2)

5,000,000

4,500,000

3,500,000

5,500,000

What is the NPV of the acquisition for Mediaworks, if it offers 395,000 of its shares? (4)

$4,052,192

$4,552,192

$5,552,192

$5,052,192

What should Mediaworks do? (4)

Mediaworks should offer a cash payment of $75 for every QMS share

Mediaworks should offer 395,000 of its shares

Mediaworks should offer a cash payment of $70 for every QMS share.

Mediaworks should offer 350,000 of its shares.