Penn CorpIs Analyzing the Possible Acquisition of Teller Company

Multiple Choice

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 $3.7 million indefinitely.The current market value of Teller is $103 million,and that of Penn is $151.7 million.The appropriate discount rate for the incremental cash flows is 9 percent.Penn is trying to decide whether it should offer 40 percent of its stock of $127 million in cash to Teller's shareholders.The cost of the cash alternative is _____,while the cost of the stock alternative is _____.

A) $103,000,000; $118,324,444
B) $103,000,000; $127,000,000
C) $127,000,000; $103,000,000
D) $127,000,000; $118,324,444
E) $236,000,000; $103,000,000