Sweet Cola Corp. (SCC) is bidding to take over Salty Dog Pretzels (SDP). SCC has 3 million shares of stock outstanding at a price of $50 per share. SDP has 2 million shares outstanding at a price of $20 per share. Neither company has any debt, preferred stock, or any non-operating assets. SCC estimates that there are operating synergies if it acquires SDP. Specifically, SCC estimates that the value of the possible synergies is $15 million.

1. Determine the potential offer price range that SCC should consider.

2. Assume that SCC offers $25 cash per share.

a. Determine the $-gains to SCC shareholders.

b. Determine the $-gains to SDP shareholders.

c. Determine the post-acquisition price of SCCs stock.

3. Assume that SCC offers 0.4 shares of SCC stock in exchange for each share of SDP stock.

a. Determine the $-gains to SCC shareholders.

b. Determine the $-gains to SDP shareholders.

c. Determine the post-acquisition price of SCCs stock.

4. SCC is highly uncertain about the potential synergistic gains from this merger. Should SCC utilize the cash offer or the stock offer (explain)?