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What is the cost of each alternative

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Question - Supplement Corp. is analyzing the possible acquisition of King's Company. Both firms have no debt. Supplement believes the acquisition will increase its total after-tax annual cash flow by $3 million indefinitely. The current market value of King's is $42 million, and that of Supplement Corp. is $87 million. The appropriate discount rate for incremental cash flows is 10 percent. Supplement Corp. is trying to decide whether it should offer 40 percent of its stock or $64 million in cash to King's shareholders.

Required -

a. What is the cost of each alternative?

b. What is the NPV of each alternative?

c. Which alternative should Supplement corp. choose?

Reference no: EM133110813

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