Quisco Systems has 6.1 billion shares outstanding and a share price of $ 18.02. Quisco is...

70.2K

Verified Solution

Question

Finance

Quisco Systems has 6.1 billion shares outstanding and a shareprice of $ 18.02. Quisco is considering developing a new networkingproduct in house at a cost of $ 500 million.? Alternatively, Quiscocan acquire a firm that already has the technology for $ 920million worth? (at the current? price) of Quisco stock. Supposethat absent the expense of the new? technology, Quisco will haveEPS of $ 0.78.
a. Suppose Quisco develops the product in house. What impactwould the development cost have on? Quisco's EPS? Assume all costsare incurred this year and are treated as an? R&D expense,?Quisco's tax rate is 35 %?, and the number of shares outstanding isunchanged.
b. Suppose Quisco does not develop the product in house butinstead acquires the technology. What effect would the acquisitionhave on? Quisco's EPS this? year? (Note that acquisition expensesdo not appear directly on the income statement. Assume the firm wasacquired at the start of the year and has no revenues or expensesof 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 impacton? earnings? Is this method? cheaper? Explain.

Answer & Explanation Solved by verified expert

4.3 Ratings (583 Votes)

a Additional cost incurred on new technology 500 million Tax rate 35 Current Net income Current EPS x no of shares outstanding 078 x 61 billion 4758 billion 4758 x 1000 million 4758 million New net income Current net income Additional cost incurred on new technology1tax rate 4758 500135 4758 325 4433 million 44331000 billion 4433 billion New EPS New net See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Quisco Systems has 6.1 billion shares outstanding and a shareprice of $ 18.02. Quisco is considering developing a new networkingproduct in house at a cost of $ 500 million.? Alternatively, Quiscocan acquire a firm that already has the technology for $ 920million worth? (at the current? price) of Quisco stock. Supposethat absent the expense of the new? technology, Quisco will haveEPS of $ 0.78.a. Suppose Quisco develops the product in house. What impactwould the development cost have on? Quisco's EPS? Assume all costsare incurred this year and are treated as an? R&D expense,?Quisco's tax rate is 35 %?, and the number of shares outstanding isunchanged.b. Suppose Quisco does not develop the product in house butinstead acquires the technology. What effect would the acquisitionhave on? Quisco's EPS this? year? (Note that acquisition expensesdo not appear directly on the income statement. Assume the firm wasacquired at the start of the year and has no revenues or expensesof 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 impacton? earnings? Is this method? cheaper? Explain.