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 flow by $0.9 million indefinitely. The current market value of Teller is $48 million, and that of Penn is $58 million. The appropriate discount rate for the incremental cash flows is 10 percent. If Penn has decided to offer 40 percent of its stock to Teller's shareholders, what is the cost of the stock offer?
Added by Jose Antonio B.
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Value of incremental cash flows = $0.9 million / 10% = $9 million Show more…
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