Which alternative should penn choose

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Penn Cop. is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acquisition will increase its total after tax annual cash flows by 3.1 million indefinitely. The current market value of Teller is 78 million and that of Penn in 135 million. The appropriate discount rate for the incremental cash flows in 13 percent. Penn is trying to decide whether it should offer 40 percent of its stock or 94 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: EM13305000

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