Penn Corp Is Analyzing the Possible Acquisition of Teller Company

question 9

Multiple Choice

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 $3.7 million indefinitely. The current market value of Teller is $103 million, and that of Penn is $151.7 million. The appropriate discount rate for the incremental cash flows is 9 percent. Penn is trying to decide whether it should offer 44 percent of its stock of $133 million in cash to Teller's shareholders. The cost of the cash alternative is _____, while the cost of the stock alternative is _____.

• A)$103,000,000; $130,156,889
• B)$103,000,000; $133,000,000
• C)$133,000,000; $103,000,000
• D)$133,000,000; $130,156,889
• E)$236,000,000; $103,000,000

---

Definitions:

Rule of Law

The principle that all individuals, institutions, and entities are accountable to laws that are publicly promulgated, equally enforced, and independently adjudicated.

Doctrines

Established principles or policies in law or religious beliefs that are taught and accepted as authoritative.

Administrative Law

The body of law that governs the activities of administrative agencies of government, including rules, regulations, procedures, and decisions.

Rescission

A remedy whereby a contract is canceled and the parties are returned to the positions they occupied before the contract was made; may be effected through the mutual consent of the parties, by their conduct, or by court decree.