What is the cost of each alternative

Reference no: EM13302961

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 $3.1 million indefinitely. The current market value of Teller is $76 million, and that of Penn is $130 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 $95 million in cash to Teller's 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: EM13302961

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