Systems has 6.45 billion shares outstanding and a share price of $17.25. Quisco is considering developing a newnetworking product in-house at a cost of $497 million. Alternatively, Quisco can acquire a firm that already has thetechnology for $899 million worth (at the current price) of Quisco stock. Suppose that absent the expense of the newtechnology, Quisco will have EPS of $0.828. a. Suppose Quisco develops the product in-house. What impact wouldthe development cost have onQuisco's EPS? Assume all costs are incurred this year and are treated as an R&D expense,Quisco's tax rate is 40 %, and the number of shares outstanding is unchanged. b. Suppose Quisco does not developthe product in-house but instead acquires the technology. What effect would the acquisition have on Quisco's EPS thisyear? (Note that acquisition expenses do not appear directly on the income statement. Assume the firm was acquired atthe start of the year and has no revenues or expenses of its own, so that the only effect on EPS is due to the change inthe number of shares outstanding.) c. Which method of acquiring the technology has a smaller impact on earnings? Isthis method cheaper? Explain

No. of shares outstanding = 6.45 billion or 6450 millionShare price = 17.25Cost of product in house…

Answered: Systems has 6.45 billion shares…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 5P

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