Question
Penn Corporation is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acquisition will increase its total aftertax annual
| Penn Corporation 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 $4.2 million indefinitely. The current market value of Teller is $113 million, and that of Penn is $184.8 million. The appropriate discount rate for the incremental cash flows is 11 percent. Penn is trying to decide whether it should offer 37 percent of its stock or $124.9 million in cash to Teller's shareholders. |
| What is the cost of the cash alternative? |
| What is the cost of the stock alternative? |
| What is the NPV of the cash alternative? |
| What is the NPV of the stock alternative? |
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Investment Analysis And Portfolio Management
Authors: Frank K. Reilly, Keith C. Brown
9th Edition
0324656122, 978-0324656121
