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Totalfresh Food Inc. is considering the acquisition of GreenVeg at a cash price of $7,200,000. Totalfresh and GreenVeg have annual earnings of…

Totalfresh Food Inc. is considering the acquisition of GreenVeg at a cash price of $7,200,000. Totalfresh and GreenVeg have annual earnings of $3,500,000 and $600,000, respectively. When they merge it is expected that $400,000 additional cash flow will be generated next year and the cash flow will continue to grow at 2% per annum thereafter. The merged firm’s cost of capital is expected to be 10%. Totalfresh has 4,000,000 shares on issue and GreenVeg has 1,200,000 shares on issue. The current share prices of Totalfresh and GreenVeg are $8 per share and $5 per share, respectively. Please note that the money for the cash offer of $7,200,000 will be raised by selling new shares. 

1.Calculate the NPV of the merger.  the share price after the merger. the P/E ratio after the merger. 

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