Question
4. Penn Corp. is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acquisition will increase its total aftertax
| 4. Penn Corp. is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acquisition will increase its total aftertax annual cash flows by $4.3 million indefinitely. The current market value of Teller is $90 million, and that of Penn is $189.2 million. The appropriate discount rate for the incremental cash flows is 11 percent. Penn is trying to decide whether it should offer 40 percent of its stock or $127.9 million in cash to Teller's shareholders. |
| What is the cost of the cash alternative? |
| What is the cost of the stock alternative? |
| What is the NPV of the cash alternative? |
| What is the NPV of the stock alternative? |
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Investments Analysis And Management
Authors: Charles Jones, Nick Jones
11th Edition
0470477121, 9780470477120
