Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Question
Chapter 26, Problem 5QP
a)
Summary Introduction
To compute: The cost of every alternative.
Introduction:
Acquisition is the process of takeover of one company by another through various processes. Such processes include mergers, stock acquisition, and assets.
b)
Summary Introduction
To calculate: The NPV (
Introduction:
Acquisition is the process of takeover of one company by another through various processes. Such processes include mergers, stock acquisition, and assets.
c)
Summary Introduction
To decide: The alternative that Company P must select.
Introduction:
Acquisition is the process of takeover of one company by another through various processes. Such processes include mergers, stock acquisition, and assets.
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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 $48 million, and that of Penn is
$90 million. The appropriate discount rate for the incremental cash flows is 10 percent.
Penn is trying to decide whether it should offer 45 percent of its stock or $73 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
Equity cost
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
Penn Corp. is analyzing the possible acquisition of Teller Company. Both believes the acquisition will increase its total aftertax annual cash flow by $1,121,625.19 indefinitely. The current market value of Teller is $24,273,531 and that of Penn is $66,093,202. The appropriate discount rate for the incremental cash flow is 11.69%. Penn is trying to decide whether it should offer 30% of its stock or $37,299,371 in cash to Teller's shareholders.
What is the NPV of the cash offer?
HINT: Subtract the cash offer from the value of the combined firm.
Chapter 26 Solutions
Fundamentals of Corporate Finance
Ch. 26.1 - Prob. 26.1ACQCh. 26.1 - Prob. 26.1BCQCh. 26.2 - Prob. 26.2ACQCh. 26.2 - Prob. 26.2BCQCh. 26.3 - Prob. 26.3ACQCh. 26.3 - Prob. 26.3BCQCh. 26.4 - Prob. 26.4ACQCh. 26.4 - Prob. 26.4BCQCh. 26.5 - Prob. 26.5ACQCh. 26.5 - Prob. 26.5BCQ
Ch. 26.6 - Prob. 26.6ACQCh. 26.6 - Prob. 26.6BCQCh. 26.7 - Prob. 26.7ACQCh. 26.7 - Prob. 26.7BCQCh. 26.8 - Prob. 26.8ACQCh. 26.8 - Prob. 26.8BCQCh. 26.9 - Prob. 26.9ACQCh. 26 - Prob. 26.3CTFCh. 26 - What factors should be considered when deciding...Ch. 26 - Prob. 1CRCTCh. 26 - Prob. 2CRCTCh. 26 - Prob. 3CRCTCh. 26 - Prob. 4CRCTCh. 26 - Prob. 5CRCTCh. 26 - Prob. 6CRCTCh. 26 - Prob. 7CRCTCh. 26 - Prob. 8CRCTCh. 26 - Prob. 9CRCTCh. 26 - Prob. 10CRCTCh. 26 - Prob. 1QPCh. 26 - Prob. 2QPCh. 26 - Prob. 3QPCh. 26 - Prob. 4QPCh. 26 - Prob. 5QPCh. 26 - Prob. 6QPCh. 26 - Prob. 7QPCh. 26 - Prob. 8QPCh. 26 - Cash versus Stock as Payment [LO3] In the previous...Ch. 26 - Prob. 10QPCh. 26 - Prob. 11QPCh. 26 - Prob. 12QPCh. 26 - Prob. 13QPCh. 26 - Prob. 14QPCh. 26 - Prob. 1MCh. 26 - Prob. 2MCh. 26 - Prob. 3MCh. 26 - Prob. 4M
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