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| Teaching Since: | May 2017 |
| Last Sign in: | 408 Weeks Ago, 2 Days Ago |
| Questions Answered: | 66690 |
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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Penn Corp. 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 $2 million indefinitely. The current market value of Teller is $41 million, and that of Penn is $86 million. The appropriate discount rate for the incremental cash flows is 10 percent. Penn is trying to decide whether it should offer 40 percent of its stock or $59 million in cash to Teller's shareholders. a. What is the cost of each alternative? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.) Cash cost $ Equity cost $ b. What is the NPV of each alternative? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.) NPV cash $ NPV stock $ c. Which alternative should Penn choose? Stock Cash
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