Penn CorpIs Analyzing the Possible Acquisition of Teller Company

question 80

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 40 percent of its stock of $127 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; $118,324,444
• B)$103,000,000; $127,000,000
• C)$127,000,000; $103,000,000
• D)$127,000,000; $118,324,444
• E)$236,000,000; $103,000,000

---

Definitions:

Foreign Market

An external market outside the domestic borders where goods, services, and securities are traded or sold.

Cost of Production

The total expense incurred in manufacturing goods or providing services, including raw materials, labor, and overhead costs.

Trade Barriers

Measures that governments or public authorities introduce to make imported goods or services less competitive than locally produced goods and services.

Economic Perspective

The viewpoint from which economic analysts assess and interpret the workings of economic systems and the behavior of economic agents.