Velcro Saddles is contemplating the acquisition of Skiers’ Airbags Incorporated. The values of the two companies as separate entities are $24 million and $12 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $520,000 per year in perpetuity. Velcro Saddles can either pay $16 million cash for Skiers’ or offer Skiers’ a 48% holding in Velcro Saddles. The opportunity cost of capital is 10%.

Required:
What is the gain from merger?

Note: Enter your answer in millions rounded to 2 decimal places.

What is the cost of the cash offer?

Note: Enter your answer in millions.

What is the cost of the stock alternative?

Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.

What is the NPV of the acquisition under the cash offer?

Note: Enter your answer in millions rounded to 2 decimal places.

What is its NPV under the stock offer?