What is the cost of each alternative

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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 $54 million, and that of Penn is $84 million. The appropriate discount rate for the incremental cash flows is 10 percent. Penn is trying to decide whether it should offer 45 percent of its stock or $72 million in cash to Teller's shareholders.

a. What is the cost of each alternative? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

  Cash cost $

  Equity cost $

b. What is the NPV of each alternative? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

  NPV cash $

  NPV stock

Reference no: EM131923901

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