Cash versus stock payment

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Reference no: EM131078026

Cash versus Stock Payment [LO3] 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 $43 million, and that of Penn is $89 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 $61 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: EM131078026

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