Velcro Saddles is contemplating the acquisition of Pogo Ski Sticks, Inc. The values of the two companies as separate entities are $56 million and $28 million, respectively.

Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $680,000 per year in perpetuity. Velcro Saddles considers offering Pogo shareholders a 50% holding in Velcro Saddles. The opportunity cost of capital is 8%.

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 2 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 2 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 2 decimal places.)

NPV $ million

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