Northern (A) is considering merging with Wisconsin Software (B).

Neither firm has debt

Northern forecasts that total combined annual after-tax cash flows would increase by $2 million indefinitely.

Northerns current market value = $125 million (VA = $125M.)

Wisconsins current market value = $70 million (VB = $70M.)

The appropriate discount rate for the incremental cash flows is 8%

Northern has 1 million shares outstanding a) What is the Synergy (total gain) from the Merger?

a) What is the Synergy (total gain) from the Merger?

b) What is the value of Wisconsin (B) to Northern (A)? (ADD VALUE OF A TO THE SYNERGY)

c) What is the NPV (As gain) of acquisition to Northern if it pays $75 million CASH to Wisconsin?

d) What is the NPV of the acquisition to Northern if instead of cash, it issues 500,000 new shares to Wisconsin Softwares shareholders to acquire the firm?

e) Should the firm attempt the merger? If so, with which offer: cash or stock?

f) What is the postmerger firm value if cash is offered?

g) What is the postmerger firm value if STOCK is offered?

h) What is the merged firms stock price if cash is offered?

i) What is the merged firms stock price if STOCK is offered?