Al's Is Analyzing the Possible Acquisition of Baker's

question 61

Multiple Choice

Al's is analyzing the possible acquisition of Baker's. Both firms have no debt. Al's believes the acquisition will increase its total aftertax annual cash flows by $2.8 million indefinitely. The current market value of Baker's is $91 million, and that of Al's is $143.6 million. The appropriate discount rate for the incremental cash flows is 11 percent. Al's is trying to decide whether it should offer 40 percent of its stock or $104 million in cash to Baker's shareholders. The cost of the cash alternative is ________, while the cost of the stock alternative is ________.

• A) $91,000,000; $90,824,141
• B) $91,000,000; $104,000,000
• C) $91,000,000; $91,338,092
• D) $104,000,000; $104,021,818
• E) $104,000,000; $103,837,209

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Definitions:

Personality Psychology

A branch of psychology focused on understanding individual differences in behavior, emotion, and thought.

Extraversion

A personality dimension involving energy directed outward, such as excitement seeking, socializing, and talkativeness.

Introversion

A trait in someone's character that revolves around prioritizing personal feelings above outside sources of stimulation.

Extraverts

Individuals characterized by their outgoing, sociable, and energetic behavior.