Velcro Saddles is contemplating the acquisition of Pogo Ski Sticks, Inc. The values of the two companies as separate entities are $21.5 million and $11.5 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $350,000 per year in perpetuity. Velcro Saddles can either pay $14.0 million cash for Pogo or offer Pogo a 50% holding in Velcro Saddles. The opportunity cost of capital is 10%.

a.	What is the gain from merger? (Enter your answer in millions rounded to 1 decimal place.)

Gain?

$ million

b.	What is the cost of the cash offer? (Enter your answer in millions rounded to 1 decimal place.)

Cost of the cash offer?

$ million

c.	What is the cost of the stock alternative? (Enter your answer in millions rounded to 2 decimal places.)

Cost of the stock offer?

$ million

d.	What is the NPV of the acquisition under the cash offer? (Enter your answer in millions rounded to 1 decimal place.)

NPV?

$ million

e.	What is its NPV under the stock offer? (Negative amount should be indicated by a minus sign.Enter your answer in millions rounded to 2 decimal places. )

NPV?

$ million