Quisco Systems has 6.9 billion shares outstanding and a share price of $18.92. Quisco is considering developing a new networking product in house at a cost of $509 million.Alternatively, Quisco can acquire a firm that already has the technology for $967 million worth(at the currentprice) of Quisco shares. Suppose that absent the expense of the newtechnology, Quisco will have EPS of $0.92.

a. Suppose Quisco develops the product in house. What impact would the development cost have onQuisco's EPS? Assume all costs are incurred this year and are treated as anR&D expense,Quisco's tax rate is 30 % and the number of shares outstanding is unchanged.(Assume the new product would not change thisyear's revenues.)

Quisco's new EPS would be $. . (Round to the nearestcent.)

b. Suppose Quisco does not develop the product in house but instead acquires the technology. What effect would the acquisition have onQuisco's EPS thisyear? (Note that acquisition expenses do not appear directly on the income statement.

Assume the acquired firm has no revenues or expenses of itsown, so that the only effect on EPS is due to the change in the number of sharesoutstanding.)

Quisco's EPS with the purchase is $. (Round to the nearestcent.)

c. Which method of acquiring the technology is cheaper forQuisco?(Select from thedrop-down menu.)

Purchasing technology with stock

Developing technology in house