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, i.e. 1,234,567.)

Cash cost	$
Equity cost	$

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

NPV cash	$
NPV stock	$

c.

Which alternative should Penn choose?

	Cash
	Stock

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