What is the npv and cost of each alternative

Assignment Help Financial Management

Reference no: EM132025004

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 $4 million indefinitely. The current market value of Teller is $43 million, and that of Penn is $88 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 $69 million in cash to Teller's shareholders.

a. What is the cost of each alternative? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Cash cost $

Equity cost $

b. What is the NPV of each alternative? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

NPV cash $

NPV stock $

c. Which alternative should Penn choose?

Stock

Cash

Reference no: EM132025004

Questions Cloud

What were the distinctive features of the han period : What Were The Distinctive Features Of The Han Period, And How Did The Han Dynasty Build On Its Predecessor, The Qin Dynasty?

Calculate the depreciation for asset : Calculate the depreciation for asset over its ENTIRE life. Do not consider section 179 or bonus depreciation - Fully analyze these costs

Why was world war one considered a world war : "Why was World War One considered a ‘world war'?" Do your own research to find a good.

What is the expected outcome : You have the opportunity of making a $5,000 investment. The outcomes one year from now will be either $4,500 or $6,000 with an equal chance of either outcome.

What is the npv and cost of each alternative : Penn Corp. is analyzing the possible acquisition of Teller Company. What is the cost of each alternative? What is the NPV of each alternative?

How many call options will you need to write to hedge : How many call options will you need to write to hedge your portfolio using the option delta as your basis, given writing calls is your only hedge mechanism?

What is the historical context of the event : What is the historical context of the event? In other words, what was going on in the world/area/society around the event?

What is the added value generated by your purchase : If the building is being offered for sale at a price of $350,000, would you buy the building and what is the added value generated by your purchase.

What exchange rate system do we need to export inflation : What exchange rate system do we need to export inflation? What is the mechanism by which inflation differentials affect the exchange rate?

User Account

All Pages