LA Crystalia Tech Quisco Systems has 6.42 billion shares outstanding and a share price of $18.59. Quisco is considering developing a new networking product in-house at a cost of $493 million. Alternatively, Quisco can acquire a firm that already has the technology for $903 million worth (at the current price) of Quisco stock. Suppose that absent the expense of the new technology, Quisco will have EPS of $0.758. a. Suppose Quisco develops the product in-house. What impact would the development cost have onQuisco's EPS? Assume all costs are incurred this year and are treated as an R&D expense, Quisco's tax rate is 30%, and the number of shares outstanding is unchanged. b. Suppose Quisco does not develop the product in-house but instead acquires the technology. What effect would the acquisition have on Quisco's EPS this year? (Note that acquisition expenses do not appear directly on the income statement. Assume the firm was acquired at the start of the year and has no revenues or expenses of its own, so that the only effect on EPS is due to the change in the number of shares outstanding.) c. Which method of acquiring the technology has a smaller impact on earnings? Is this method cheaper? Explain. a. Suppose Quisco develops the product in-house. What impact would the development cost have on Quisco's EPS? Assume all costs are incurred this year and are treated as an R&D expense, Quisco's tax rate is 30%, and the number of shares outstanding is unchanged. by If Quisco develops the product in-house, its earnings wou million. With no change to the number of shares outstanding, its EPS would (Assume the new product would not change this year's revenues.) (Select from the drop-down menus.) If Quisco acquires the technology for $903 million worth of its stock, it will issue (Select from the drop-down menus.) c. Which method of acquiring the technology has a smaller impact on earnings? Is this method cheaper? Explain. (Select all the choices that apply.) b. Suppose Quisco does not develop the product in-house but instead acquires the technology. What effect would the acquisition have on Quisco's EPS this year? (Note that acquisition expenses do not appear directly on the income statement. Assume the firm was acquired at the start of the year and has no revenues or expenses of its own, so that the only effect on EPS is due to the change in the number of shares outstanding.) million new shares. Since earnings without this transaction are A. Acquiring the technology would have a smaller impact on earnings, but this method is not cheaper. B. Developing it in-house is less costly and provides an immediate tax benefit. The earnings impact is not a good measure of the expense. C. Because the acquisition permanently increases the number of shares outstanding, it will reduce Quisco's earnings per share in future years as well. D. Because the acquisition permanently decreases the number of shares outstanding, it will increase Quisco's earnings per share in future years as well. Mansour Rahimi Beoort w 2009 by to billion, its EPS with the purchase is LIST-NISH en Shot 22:00-20. 25

50.758 . Ouiscots tax rale is 30%, and the number of stures outstanding is inchanged. the number of shares cutatanding) c. Which method of acquiring the tectnology has a smaler impact on eamings? is this mestod cheaper? Explain. 2. Suppose Quisco develops the product hhouse. What impact would Be development cont have on Ouisco's EPS? Assume al costs are incurred this yeur and are treated as an RSD expense. Ouisco's tax rate is 30k, and the numbet of shares outstanding is unchanged. If Ouispo develops the product in house, its eaminge would oy milion. Whe no change is the number of thares outatanding. its EPS would (Assume the new product would not charoe this years covenues.) (Select hom the drepodown menca). the number of shares outstanding, (Select from the drop-down mens.) milion new shaves. Since eamingo wathout this transuction are bilion, its EPs wh the purchase is B. Developeng it inhouse is less cotly and provides an immediale tax benefe. The eamings impast is not a good messure of the expense. 50.758 . Ouiscots tax rale is 30%, and the number of stures outstanding is inchanged. the number of shares cutatanding) c. Which method of acquiring the tectnology has a smaler impact on eamings? is this mestod cheaper? Explain. 2. Suppose Quisco develops the product hhouse. What impact would Be development cont have on Ouisco's EPS? Assume al costs are incurred this yeur and are treated as an RSD expense. Ouisco's tax rate is 30k, and the numbet of shares outstanding is unchanged. If Ouispo develops the product in house, its eaminge would oy milion. Whe no change is the number of thares outatanding. its EPS would (Assume the new product would not charoe this years covenues.) (Select hom the drepodown menca). the number of shares outstanding, (Select from the drop-down mens.) milion new shaves. Since eamingo wathout this transuction are bilion, its EPs wh the purchase is B. Developeng it inhouse is less cotly and provides an immediale tax benefe. The eamings impast is not a good messure of the expense