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S 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

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Abiolataiwo2015idn

The cost of each alternative is $25 million and $27.6 million.

Cost of each alternative

First alternative

Cost/Premium=$73 million-$48 million

Cost /premium=$25 million

Second alternative

Value to target to acquirer=$48 million+($3 million/.10)

Value of target to acquire=$78 million

Purchase price=.45($90 million+$78 million)

Purchase price=$75.6 million

Cost/premium=$75.6 million-$48 million

Cost/premium=$27.6 million

Therefore the cost of each alternative is $25 million and $27.6 million.

Learn more about cost here:https://brainly.com/question/1602185

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