1. Suppose you were involved in the Disney/Pixar merger and neither firm has debt.

Disney thinks that upon merging, it will save $70,000 annually in after-tax movie-distribution costs, indefinitely. Further suppose that Pixars current market value is $7 million, while Disneys current market value is $80 million. The appropriate discount rate for the merger is 10%.

1. What is the $ amount of the expected synergy?
2. What is the value of Pixar to Disney?
3. If Disney offers Pixar $7.5 million in cash, what is the NPV of the merger to Disneys current shareholders?
4. If Disney is trading at $80 before the merger, how many shares of Disney stock should they offer Pixar to mimic the $7.5 million cash offer?