VS is contemplating the acquisition of TG. Each company has 1 million shares outstanding
You are given the following information:
Value of VS alone (in million)	100
Value of TG alone (in million)	57
From merger, the estimated reduction in after-tax R&D costs per year in perpetuity (in million)	5
VS is considering a cash offer to TG (in million):	74.1
Cost of capital	0.08
Tax-rate	0.37
i. What would be the gain from the merger?
ii. What is the cost of the cash offer?
iii. What is the NPV of the acquisition under the cash offer?
Now suppose that instead of making a cash offer, VS cosiders offering TG shareholders a 50% holding in VS.
iv. What is the value of stock in the merged company held by the original TG shareholders?
v. What is the cost of the stock alternative?
vi. What is the NPV under the stock offer?