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

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Definitions:

Information-Processing Model

A framework that compares human cognition to the way computers process information, emphasizing stages of input, processing, and output.

Conceptualization

The process of defining clear, detailed concepts and terms for use in a study, ensuring mutual understanding and specificity in discussion or research.

Information-Processing Theory

A framework for studying memory that uses the computer as a model of human cognitive processes.

Information Processing

A cognitive approach that likens the mind to a computer in terms of how information is encoded, stored, and retrieved.