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 $3 million indefinitely. The current market value of Teller is $55 million, and that of Penn is $85 million. The appropriate discount rate for the incremental cash flows is 10 percent. Penn is trying to decide whether it should offer 45 percent of its stock or $78 million in cash to Teller's shareholders.
a.What is the cost of each alternative?
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Canadian Public Finance
Authors: Genevieve Tellier
1st Edition
1487594410, 978-1487594411
