QUESTION 6 1. Penn Corp. is analyzing the possible acquisition of Teller Company. Both believes the acquisition will increase its total aftertax annual cash flow by $1,405,916.03 indefinitely. The current market value of Teller is $27,847,077 and that of Penn is $65,159,888. The appropriate discount rate for the incremental cash flow is 12.78%. Penn is trying to decide whether it should offer 34% of its stock or $32,216,780 in cash to Teller's shareholders. What is the equity cost of the acquisition? HINT: Compute the value of the combined firm by adding the current value of the target with the present value of the differential cash flow of the combined firm. To determine the equity cost of the acquisition, add the current value of the acquirer and then multiply by the proposed percentage of the stock that has been offered for the firm.

QUESTION 8 1. Penn Corp. is analyzing the possible acquisition of Teller Company. Both believes the acquisition will increase its total aftertax annual cash flow by $1,266,556.71 indefinitely. The current market value of Teller is $23,981,624 and that of Penn is $68,281,309. The appropriate discount rate for the incremental cash flow is 10.54%. Penn is trying to decide whether it should offer 36% of its stock or $36,795,952 in cash to Teller's shareholders. What is the NPV of the cash offer? HINT: Subtract the cash offer from the value of the combined firm.