disco Systems has developing a new networking product in house at a cost of $454 million. Alternatively, Quisco can acquire a fir that already has the technology for $932 million worth (at the current price) of Quisco stock. Suppose that abs the expense of the new technology, Quisco will have EPS of $0.66. a. Suppose Quisco develops the product in house. What impact would the development cost have on Quisco" EPS? Assume all costs are incurred this year and are treated as an R&D expense, Quisco's tax rate is 25%, the number of shares outstanding is unchanged. b. Suppose Quisco does not develop the product in house but instead acquires the technology. What effect would the acquisition have on Quisco's EPS this year? (Note that acquisition expenses do not appear directly the income statement. Assume the firm was acquired at the 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 in the number of shares outstanding.) c. Which method of acquiring the technology has a smaller impact on earnings? Is this method cheaper? Explain. a suppose Quisco develops the product in house. What impact would the development cost have on Quisco
disco Systems has developing a new networking product in house at a cost of $454 million. Alternatively, Quisco can acquire a fir that already has the technology for $932 million worth (at the current price) of Quisco stock. Suppose that abs the expense of the new technology, Quisco will have EPS of $0.66. a. Suppose Quisco develops the product in house. What impact would the development cost have on Quisco" EPS? Assume all costs are incurred this year and are treated as an R&D expense, Quisco's tax rate is 25%, the number of shares outstanding is unchanged. b. Suppose Quisco does not develop the product in house but instead acquires the technology. What effect would the acquisition have on Quisco's EPS this year? (Note that acquisition expenses do not appear directly the income statement. Assume the firm was acquired at the 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 in the number of shares outstanding.) c. Which method of acquiring the technology has a smaller impact on earnings? Is this method cheaper? Explain. a suppose Quisco develops the product in house. What impact would the development cost have on Quisco
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Quisco Systems has 7.8 billion shares outstanding and a share price of $17.43. Quisco is considering
developing a new networking product in house at a cost of $454 million. Alternatively, Quisco can acquire a firm
that already has the technology for $932 million worth (at the current price) of Quisco stock. Suppose that absent
the expense of the new technology, Quisco will have EPS of $0.66.
a. Suppose Quisco develops the product in house. What impact would the development cost have on Quisco's
EPS? Assume all costs are incurred this year and are treated as an R&D expense, Quisco's tax rate is 25%, and
the number of shares outstanding is unchanged.
b. Suppose Quisco does not develop the product in house but instead acquires the technology. What effect
would the acquisition have on Quisco's EPS this year? (Note that acquisition expenses do not appear directly on
the income statement.
Assume the firm was acquired at the 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 in the number of shares outstanding.)
c. Which method of acquiring the technology has a smaller impact on earnings? Is this method cheaper?
Explain.
a. Suppose Quisco develops the product in house. What impact would the development cost have on Quisco's
EPS? Assume all costs are incurred this year and are treated as an R&D expense, Quisco's tax rate is 25%, and
the number of shares outstanding is unchanged.
Quisco's new EPS would be $ 0.62 (Round to the nearest cent.)
b.
uppose Quisco does not develop the product in house but instead acquires the technology. What effect
would the acquisition have on Quisco's EPS this year? (Note that acquisition expenses do not appear directly on
the income statement.
Assume the firm was acquired at the 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 in the number of shares outstanding.)
Quisco's EPS with the purchase is $
(Round to the nearest cent.)
in
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