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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 flow by $3 million indefinitely. The current market value of Teller is $55 million, and that of Penn is $85 million. The appropriate discount rate for the incremental cash flows is 10 percent. Penn is trying to decide whether it should offer 45 percent of its stock or $78 million in cash to Teller’s shareholders. a. What is the cost of each alternative? (Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Cash cost $ Equity cost $ b. What is the NPV of each alternative? (Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) NPV cash $ NPV stock $ c. Which alternative should Penn choose? Stock Cash
Consider an exchange traded put option to sell 100 shares for $30. Give (a) the strike price and (b) the number of shares that can be sold after:
Your firm is considering leasing a new robotic milling control system. The lease lasts for 4 years. The lease calls for 5 payments of $280,000 per year with the first payment occurring at lease inception. The system would cost $900,000 to buy and wou..
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Explain what happens to each of the components of aggregate spending: consumption, investment, government purchases, and net exports.
Hooper Printing Inc. has bonds outstanding with 19 years left to maturity. The bonds have an 7% annual coupon rate and were issued 1 year ago at their par value of $1,000. However, due to changes in interest rates, the bond's market price has fallen ..
U.S. Telephone Cellular sells phones for $100. The unit variable cost per phone is $50 plus a selling commission of 10% (based on the unit sales price per phone). Fixed manufacturing costs total $1,040 per month, while fixed selling and administrativ..
Why are capital gains excluded from the dividend discount model? Does the exclusion of capital gains limit its validity? How do money managers and investors address this issue?
A security analyst has forecast the dividends of Hodges Enterprises for the next three years. His forecast is D1=$1.50; D2=$1.75; D3=$2.20. He has also forecast a price in three years of $48.50. The rate of return for similar risk common stock is 14%..
When the dollar is worth more in relation to currencies of other countries, are you more likely to buy American made or foreign made jeans? Are US companies that manufacture jeans happier when the dollar is strong or when it is weak? What about an Am..
Calculate the expected return over the 4-year period for each of the three alternatives. Calculate the standard deviation of returns over the 4-year period for each of the three alternatives. Use your findings in parts a and b to calculate the coeffi..
Prepare a statement showing the incremental cash flows for this project over an 8-year period. Calculate the payback period (P/B) and the net present value (NPV) for the project.
Consider 3 Treasury bonds which pay semi-annual coupons. Bond A has 5 years remaining to maturity and a coupon rate of 10%. Using Excel, create a single graph showing the price of Bonds A & B for varying YTMs. Let YTM range from 0.5% to 18% per year ..
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