Pretty easy…but made me think longer than usual… Felix Hernandez is evaluating a prospective merger between two firms of relatively equal size. The acquirer is planning to borrow the entire purchase price and pay for the merger in cash. Which method of estimating the target’s intrinsic value and potential merger synergies is likely to be most useful? A) Comparable company analysis because the values are market-based. B) Comparable transaction analysis because he will not need to estimate the takeover premium. C) Discounted cash flow analysis because it will allow him to incorporate changes in the capital structure and cost of capital that are likely to result from the way the acquirer intends to raise the funds to pay for the target. D) Comparable company analyses because the assumption that similar assets should have similar values is fundamentally sound.
C, the effect of the debt will change the earnings outlook for the combined firm going forward, and change the WACC.
C
yup…thats correct…
What was the reason?
Never mind…meant to post that on a different thread