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.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 5P

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