The following table gives the information on the 2 companies for the year just ended:

	Sport Unlimited (SU)	Fast Track (FT)
Net earnings	$5,000,000	$1,500,000
Number of shares	3,000,000	1,500,000
Price	$18/share	$15/share

Both SU and FT are in the sporting goods business. SU is thinking of acquiring FT with a mix offer of both cash and share swap.

SU Manager estimates that, if the acquisition goes ahead, then the combined companys net earnings will grow by 6% instead of 2% if the companies are to operate independently and such growth rates are perpetual. SU has a cost of capital of 12%. SU would like to make an offer not to exceed 65% of the total synergy obtained as a result of the acquisition.

Q1

What is the total synergy generated in PV terms?

a. $ 48.5 MM

b. $ 50.5 MM

c. $ 45.5 MM

d. $ 52.5 MM

e. $ 47.5 MM

Q2

What is the amount of premium offered to FT expressed as a percentage?

a. 45%

b. 50%

c. 35%

d. 40%

e. 55%

Q3

If the offer is made with 40% cash and 60% share swap, what is the value of the share swap?

a. $ 21.9MM

b. $ 20.5 MM

c. $ 17.9 MM

d. $ 18.9 MM

e. $ 19.5 MM