Wheatley Corp. is analyzing the possible acquisition of Romney Company. Both firms have no debt. Wheatley believes the acquisition will increase its total after-tax annual cash flows by $2,000,000 indefinitely. The current market value of Romney is $43,000,000, and that of Wheatley is $89,000,000. The appropriate discount rate for the incremental cash flows is 10%. Wheatley is trying to decide whether it should offer 40% of its stock or $61,000,000 in cash to Romney's shareholders.

a) What is the cost of each alternative?

b) What is the NPV of each alternative?

c) Which alternative should Wheatley choose?