Quisco systems has 6.5 millionshares outstanding and a share price of $18. quisco is consideringdeveloping a new networking product in house at a cost of $500million. alternatively quisco can acquire a firm that alreadyhas the technology for $900 million worth (at the current price) ofquisco stock. suppose that absent the expense of the newtechnology, quisco will have an eps of $0.80.
a. suppose quisco develops theproduct in house. what impact would the development cost have onquisco’s eps. assume all costs are are incurred this year. andare treated as an r& d expense. quisco’s tax rate is35%, and the number of shares outstanding is unchanged.
b. suppose quisco does not developthe product in house but instead acquire the technology. whateffect would the acquisition have on quisco’s eps thisyear?
c. which method of acquiring thetechnology has a smaller impact on earning? is this method cheaper? explain.
Answers: 2
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Quisco systems has 6.5 millionshares outstanding and a share price of $18. quisco is consideringdeve...
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