Problem
Quisco Systems has 6.4 billion shares outstanding and a share price of dollar 18.22. Quisco is considering developed a new networking product in house at a cost of dollar 455 million. Alternatively, Quisco can acquire a firm that already has the technology for dollar 924 million worth (at the current point) of Quisco stock. Suppose that absent the expense of the new technology, Quisco will have EPS of dollar 0.76. Suppose Quisco develops the product in house. What impact would the development cost have on Quisco EPS? Assume all cost are incurred this your and are treated as a R & D expense. Quisco tax rate is 35 percentage and the number of shares outstanding is unchanged. 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 Which method of acquiring the technology has a smaller impact on earning? Is the method cheaper? Explain.