Al's Is Analyzing the Possible Acquisition of Baker's

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