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 flow by $1,6 million indefinitely. The current market value of Teller is $38 million, and that of Penn is $65 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 $51.5 million in cash to Teller's shareholders.

A. What is the cost of each alternative?

B. What is the NPV of each alternative?

C. Which alternative should Penn choose?