Multiple Choice
Al's is analyzing the possible acquisition of Baker's. Both firms have no debt. Al's believes the acquisition will increase its total aftertax annual cash flows by $2.8 million indefinitely. The current market value of Baker's is $91 million, and that of Al's is $143.6 million. The appropriate discount rate for the incremental cash flows is 11 percent. Al's is trying to decide whether it should offer 40 percent of its stock or $104 million in cash to Baker's shareholders. The cost of the cash alternative is ________, while the cost of the stock alternative is ________.
A) $91,000,000; $90,824,141
B) $91,000,000; $104,000,000
C) $91,000,000; $91,338,092
D) $104,000,000; $104,021,818
E) $104,000,000; $103,837,209
Correct Answer:

Verified
Correct Answer:
Verified
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