Penn Corporation is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acq
Posted: Sun Jul 03, 2022 6:42 am
Penn Corporation is analyzing the possible acquisition of TellerCompany. Both firms have no debt. Penn believes the acquisitionwill increase its total aftertax annual cash flows by $3 millionindefinitely. The current market value of Teller is $56 million,and that of Penn is $86 million. The appropriate discount rate forthe incremental cash flows is 10 percent. Penn is trying to decidewhether it should offer 45 percent of its stock or $78 million incash to Teller's shareholders. a. What is the cost of eachalternative? (Enter your answers in dollars, not millions ofdollars, e.g., 1,234,567.) b. What is the NPV of each alternative?(Enter your answers in dollars, not millions of dollars, e.g.,1,234,567.)