If the cost of common equity for the firm is 18.9%, the cost of preferred strock is 9.3%, the before-tax cost of debt is 7.9% , and the firm’s tax rate is 35%,what is QM’s weighted average cost of capital?
January 3, 2018
what reported net income would have resulted? Critical Thinking
January 3, 2018

Construct and explain an approach to the acquisition that might make the premium easier to rationalize. Would it affect your argument if neither Albe nor Wycombe were particularly profitable? If so, how?

Finance Basics

The Wycombe Company is doing well and is interested in diversifying, so it has been looking around for an acquisition target. The Albe Company has been found with the help of an investment banker. Albe is quite profitable and is about half the size of Wycombe. This size relationship is reflected in their market values. Both firms are financed entirely by equity. The investment banker has advised that it will be necessary to pay a premium of about 30% over market price to acquire Albe. Wycombe’s president is having a hard time with this news and has asked you for advice. Construct and explain an approach to the acquisition that might make the premium easier to rationalize. Would it affect your argument if neither Albe nor Wycombe were particularly profitable? If so, how?

 

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