Merging in Order to Lower Financing Costs Is Likely to Fail

question 51

Multiple Choice

Merging in order to lower financing costs is likely to fail for the following reason:

• A)Costs of issuing larger amounts of debt increase.
• B)Tax shields decrease for larger companies.
• C)Any gain from lowering the required interest rate is offset by increased guarantees on the debt.
• D)It is difficult for bondholders to calculate the postmerger debt outstanding.