Seven Seeds Coffee is considering to acquire Dominique Ansel Bakery. Both firms are in the same food industry and neither of firms own debt (in other words, both are unlevered firms). Seven Seeds Coffee projected that acquiring Dominique Ansel Bakery is likely to benefit the company by increasing its annual after-tax cash flows by $345,000 indefinitely. Currently, the market value of Dominique Ansel Bakery is $8.1 million, while the market value of Seven Seeds Coffee is $19 million. Seven Seeds Coffee is contemplating whether the company should offer $11.5 million in cash or 35% of its stock to Dominique Ansel Bakery. The estimated cost of capital for the incremental cash flows is 8%.

1. What is the estimated synergy from the merger?
2. Shows the estimated value of Dominique Ansel Bakery to Seven Seeds Coffee?
3. Calculate the cost of acquisition to Seven Seeds Coffee under each alternative?
4. What is the NPV to Seven Seeds Coffee under each alternative?
5. What alternative should Seven Seeds Coffee use?