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Fly-By-Night Couriers is analysing the possible acquisition of Flash-in-the-Pan Restaurants. Neither firm has debt. The...

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Finance

Fly-By-Night Couriers is analysing the possible acquisition of Flash-in-the-Pan Restaurants. Neither firm has debt. The forecasts of Fly-By-Night show that the purchase would increase its annual after tax cash flow by \$375,000 inde indefinitely. The current market value of Flash-in-the-Pan is $8.7 million. The current market value of Fly-By-Night is $21 million. The appropriate discount rate for the incremental cash flows is 8 percent . Fly-By-Night is trying to decide whether it should offer 35 percent of its stock or $ 12 million in cash to Flash-in- the-Pan. a) What is the synergy from the merger? b) What is the value of Flash-in-the-Pan to Fly - By - Night? c) What is the cost to Fly- By- Night of each alternative ? d) What is the NPV to Fly-By -Night of each alternative ? e) Which alternative should Fly-By -Night use?

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