An all-equity company A has 10 shares outstanding. Its equity Beta is 1.25 and its perpetual annual operating cashflow is expected to be $92. This company is considering acquisition of company B which has 5 shares outstanding, an equity Beta of 2/3 and its perpetual annual operating cashflow is expected to be $16.

The expected market return is 10% and the risk-free interest rate is 4%.

1. Should Company A acquire Company B with cash payment of $240 if it believes that by its acquisition it could increase perpetual annual operating cashflow of B by $8? Why or Why not?
2. What would the price per share of company A shares if it acquires Company B with $240 cash payment?
3. What would be the price per share of Company A shares if instead of $240 cash payment, it issues its shares currently worth $240 to company B?
4. Explain with calculations the difference, if any, in Company A share prices in parts b and c.