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 $2 million indefinitely. The current market value of Teller is $55 million, and that of Penn is $87 million. The appropriate discount rate for the incremental cash flows is 10 percent. Penn is trying to decide whether it should offer 40 percent of its stock or $64 million in cash to Teller's shareholders.

a.What is the cost of each alternative?(Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Cash cost$Equity cost$

b.What is the NPV of each alternative?(Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

NPV cash$NPV stock$

c.Which alternative should Penn choose?

CashStock