What is the cost of each alternative

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Reference no: EM131451020

Patriots Corp. is analyzing the possible acquisition of Jets Company. Both firms have no debt. Patriots believe the acquisition will increase its total after tax annual cash flow by $1.5 million indefinitely. The current market value of Jets is $48 million, and that of Patriots is $70 million. The appropriate discount rate for the incremental cash flows is 12.5 percent. Patriots are trying to decide whether they should offer 45 percent of their stock or $52 million in cash to Jets’ shareholders.

a. What is the cost of each alternative?

b. What is the NPV of each alternative?

c. Which alternative should Penn choose?

Reference no: EM131451020

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