WidgetBaker is considering making an acquisition of RiskyWidgets. Widgetbaker has a WACC of 12.5%, whereas RiskyWidgets has a WACC of 15.0%. The two firms are funded by the same proportions of debt and equity in their capital structure, which will not change as a result of the acquisition. Which of the following best describes the appropriate discount trate to use to evaluate the acquisition of RiskyWidgets? Select one: O WidgetBaker's WACC is the most appropriate discount rate to account for the risk of RiskyWidgets' cash flows O The risk-free rate will best account for the risk of RiskyWidgets' cash flows. O RiskyWidgets' WACC is the most appropriate discount rate to account for the risk of RiskyWidgets' cash flows O An average WACC from WidgetBaker and RiskyWidgets will best account for the risk of RiskyWidgets' cash flows.
WidgetBaker is considering making an acquisition of RiskyWidgets. Widgetbaker has a WACC of 12.5%, whereas RiskyWidgets has a WACC of 15.0%. The two firms are funded by the same proportions of debt and equity in their capital structure, which will not change as a result of the acquisition. Which of the following best describes the appropriate discount trate to use to evaluate the acquisition of RiskyWidgets? Select one: O WidgetBaker's WACC is the most appropriate discount rate to account for the risk of RiskyWidgets' cash flows O The risk-free rate will best account for the risk of RiskyWidgets' cash flows. O RiskyWidgets' WACC is the most appropriate discount rate to account for the risk of RiskyWidgets' cash flows O An average WACC from WidgetBaker and RiskyWidgets will best account for the risk of RiskyWidgets' cash flows.
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
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Transcribed Image Text:WidgetBaker is considering making an acquisition of RiskyWidgets. Widgetbaker has a WACC of 12.5%, whereas RiskyWidgets has a WACC of 15.0%. The two firms are funded by the same
proportions of debt and equity in their capital structure, which will not change as a result of the acquisition.
Which of the following best describes the appropriate discount trate to use to evaluate the acquisition of RiskyWidgets?
Select one:
O WidgetBaker's WACC is the most appropriate discount rate to account for the risk of RiskyWidgets' cash flows
O The risk-free rate will best account for the risk of RiskyWidgets' cash flows.
O RiskyWidgets' WACC is the most appropriate discount rate to account for the risk of RiskyWidgets' cash flows
O An average WACC from WidgetBaker and RiskyWidgets will best account for the risk of RiskyWidgets' cash flows.
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