Suppose that Company A has just made an offer to acquire Company B. Prior to the offer, Company B had 20 million shares outstanding that traded at a price of $35, and Company A had 80 million shares outstanding that traded at $30. Assume that prior to the offer the stock market did not anticipate an acquisition of Company B by Company A. Company As projections for how synergies would affect the combined firms expected FCFs over the next 5 years are those given below. You should assume that these additional expected FCFs will continue to grow at 2% a year after 2015, that FCFs are incurred at the end of each year, and that date 0 is the beginning of 2011. The appropriate r_U for the incremental cash flows from these synergies is 14%. The proposed merger will not affect the riskiness of either companys existing debt.

Change in FCF	2011	2012	2013	2014	2015
From Synergies ($m)	45	48	53	58	62

1. Given these projections, what will be the combined equity value of the merged company if it uses stock to finance the deal?

2. Suppose that company A offers to pay 1.5 share of Company a for each share of Company B. What is the total value gained by Company B shareholders from this deal?