Sweet Cola Corp. (SCC) is bidding to take over Salty Dog Pretzels (SDP). SCC has 3,000 shares outstanding, selling at $50 per share. SDP has 2,000 shares outstanding, selling at $17.50 a share. SCC estimates the economic gain from the merger to be $10,000.

1. If SDP can be acquired for $20 a share, what is the NPV of the merger to SCC?
2. What will be the stock price and value of the SDP after merger? [2 marks]
3. Now suppose that the merger takes place through an exchange of stock. Based on the pre-merger prices of the firms, SCC issues .40 of its shares for every SDP share. What will be the price of the merged firm?
4. What is the NPV of the merger to SCC when it uses an exchange of stock?