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 $1.45 million indefinitely. The current market value of Teller is $31.5 million, and that of Penn is $53 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 $44.5 million in cash to Teller’s shareholders.
Aftertax annual cash flow $1,450,000
Teller market value $31,500,000
Penn market value $53,000,000
Discount rate: 10%
Stock offer: 40%
Cash offer: $44,500,000
ANSWER THESE BELOW
Value of combined firm ???
Cash cost $44,500,000
Equity cost ??
NPV cash ???
NPV stock ???