The Hollings Corporation is considering a two-step buyout of the Norton Corporation. The latter firm has 2.7 million shares outstanding and its stock price is currently $40 per share. In the two-step buyout, Hollings will offer to buy 51 percent of Nortons shares outstanding for $64 per share in cash and the balance in a second offer of 860,000 convertible preferred stock shares. Each share of preferred stock would be valued at 50 percent over the current value of Nortons common stock. Mr. Green, a newcomer to the management team at Hollings, suggests that only one offer for all Nortons shares be made at $61.25 per share.

a. Calculate the total costs of the two alternatives.