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Total Earning: $500,000 Small Food Inc. pays out 60% of its Earnings per Share (EPS) as dividend per share. Securities analysts expect that, with its current stand-alone operations, the earnings and dividends per share of Small would grow at a constant rate of 5% each year. Big Food management believes that this acquisition will generate some economies of scale increasing this growth rate to 7% per year. a. What is the post-acquisition value of Small Food to Big Food? b. What would Big Food's synergy gain be from this acquisition? c. If Big Food were to offer S15 in cash for each share of Small Food, what would the NPV of the acquisition be? d. What's the most Big Food should be willing to pay in cash per share for the stock of Small Food? e. What would be the NPV be if Big Food offered to acquire the outstanding stock of Small Food with a shares-exchange ratio of 28:90 (i.e 28 shares of Big Food for every 90 shares of Small Food)? f. At what shares exchange ratio would Small Food shareholders be indifferent between stock acquisition and cash acquisition? Total Earning: $500,000 Small Food Inc. pays out 60% of its Earnings per Share (EPS) as dividend per share. Securities analysts expect that, with its current stand-alone operations, the earnings and dividends per share of Small would grow at a constant rate of 5% each year. Big Food management believes that this acquisition will generate some economies of scale increasing this growth rate to 7% per year. a. What is the post-acquisition value of Small Food to Big Food? b. What would Big Food's synergy gain be from this acquisition? c. If Big Food were to offer S15 in cash for each share of Small Food, what would the NPV of the acquisition be? d. What's the most Big Food should be willing to pay in cash per share for the stock of Small Food? e. What would be the NPV be if Big Food offered to acquire the outstanding stock of Small Food with a shares-exchange ratio of 28:90 (i.e 28 shares of Big Food for every 90 shares of Small Food)? f. At what shares exchange ratio would Small Food shareholders be indifferent between stock acquisition and cash acquisition

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