Q6) Suppose you are a Chief Financial Officer (CFO) of Shah Corporation. Shah Corporation is analyzing the possible acquisition of Romney Company. Both firms have no debt. Shah Corporation believes the acquisition will increase its total after-tax annual cash flows by $1,000,000 indefinitely. The current market value of Romney is $49,000,000, and that of Shah Corporation is $89,000,000. The appropriate discount rate for the incremental cash flows is 7%. Shah Corporation is trying to decide whether it should offer 40% of its stock or $51,000,000 in cash to Romney's shareholders. Based on the given information, please answer questions a, b, and c. (6 Points)

a) What is the cost of each alternative? (3 Points)

b) What is the NPV of each alternative? (2 Points)

c) Which alternative should Shah Corporation choose? (1 Point)