QUT Corporation is considering the acquisition of UQ Ltd. The values of the two companies as separate entities are $15 million and $7 million, respectively. QUT Corporation estimates that by combining the two companies it will reduce administrative costs by $180,000 per annum in perpetuity. QUT Corporation can either pay $8 million in cash for UQ, or offer UQ a 35 percent holding in QUT. If the opportunity cost of capital is 15 percent per annum. Show all work to receive marks. No marks will be given for answers without justification. Your answer should be in millions and accurate to two decimal places (e.g., 10,500,000 should be entered as 10.50).

Tthe answer can have a decimal point but should not use other characters such as a comma. (a) What is the gain, in present value terms, from the merger? (1 mark)

(b) What is the net cost of the share alternative? (2 marks)

(c) What is the NPV of the acquisition under the cash offer? (2 marks)

(d) What is the NPV of the acquisition under the share offer? (1 mark)