Penn Corporation 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 $1 million indefinitely. The current market value of Teller is $53 million, and that of Penn is $87 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 $59 million in cash to Teller's shareholders. a. Cash cost= a. Equity cost= b. NPV of cash offer= b. NPV of stock offer=
Penn Corporation 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 $1 million indefinitely. The current market value of Teller is $53 million, and that of Penn is $87 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 $59 million in cash to Teller's shareholders. a. Cash cost= a. Equity cost= b. NPV of cash offer= b. NPV of stock offer=
Chapter7: Valuation Of Stocks And Corporations
Section: Chapter Questions
Problem 1iM
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Penn Corporation 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 $1 million indefinitely. The current market value of Teller is $53 million, and that of Penn is $87 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 $59 million in cash to Teller's shareholders.
a. Cash cost= a. Equity cost= b. b. NPV of stock offer= |
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