Corporate Finance (The Mcgraw-hill/Irwin Series in Finance Insurance and Real Estate)
11th Edition
ISBN: 9781259295881
Author: Ross
Publisher: MCG
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Chapter 29, Problem 5QP
Cash versus Stock Payment 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 $1.3 million indefinitely. The current market value of Teller is $27 million, and that of Penn is $62 million. The appropriate discount rate for the incremental cash flows is 11 percent. Penn is trying to decide whether it should offer 35 percent of its stock or $37 million in cash to Teller’s
shareholders.
a. What is the cost of each alternative?
b. What is the
c. Which alternative should Penn choose?
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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=
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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 $1.45 million indefinitely. The current market value of Teller is $31.5 million, and that of Penn is $53 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 $44.5 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.)
b.
What is the NPV of each alternative? (Enter your answers in dollars, not millions of dollars, e.g, 1,234,567.)
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 $3 million indefinitely. The current market value of Teller is $49 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 40 percent of its stock or $66 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.)
Cash cost
$66,000,000
Equity cost
b.
What is the NPV of each alternative? (Enter your answers in dollars, not millions of dollars, e.g., 1,234,567.)
NPV cash
NPV stock
Chapter 29 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance Insurance and Real Estate)
Ch. 29 - Prob. 1CQCh. 29 - Prob. 2CQCh. 29 - Prob. 3CQCh. 29 - Prob. 4CQCh. 29 - Prob. 5CQCh. 29 - Prob. 6CQCh. 29 - Economies of Scale What does it mean to say that a...Ch. 29 - Prob. 8CQCh. 29 - Prob. 9CQCh. 29 - Prob. 10CQ
Ch. 29 - Prob. 1QPCh. 29 - Prob. 2QPCh. 29 - Prob. 3QPCh. 29 - Prob. 4QPCh. 29 - Cash versus Stock Payment Penn Corp. is analyzing...Ch. 29 - EPS, PE, and Mergers The shareholders of Flannery...Ch. 29 - Prob. 7QPCh. 29 - Cash versus Stock as Payment Consider the...Ch. 29 - Prob. 9QPCh. 29 - Prob. 10QPCh. 29 - Prob. 11QPCh. 29 - Prob. 12QPCh. 29 - Prob. 13QPCh. 29 - Prob. 14QPCh. 29 - Prob. 15QPCh. 29 - Prob. 16QPCh. 29 - Prob. 1MCCh. 29 - Prob. 2MCCh. 29 - Prob. 3MCCh. 29 - Prob. 4MC
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