Velcro Saddles is contemplating the acquisition of Pogo Ski Sticks, Inc. The values of the two companies as separate entities are $20 million and $10 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $500,000 per year in perpetuity. Velcro Saddles considers offering Pogo shareholders a 50% holding in Velcro Saddles. The opportunity cost of capital is 8%.

a.	What is the value of the stock in the merged company held by the original Pogo shareholders? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

Value of the stock

$ million

b.	What is the cost of the stock alternative? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

Cost of the stock

$ million

c.	What is its NPV under the stock offer? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

NPV

$ million