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 can either pay $14 million cash for pogo or offer pogo a 50% holding in the combined company. the opportunity cost of capital is 10%. 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