Holland Auto Parts Is Considering a Merger with Workman Car

question 6

Multiple Choice

Holland Auto Parts is considering a merger with Workman Car Parts.Workman's market-determined beta is 0.9, and the firm currently is financed with 20% debt, at an interest rate of 8%, and its tax rate is 25%.If Holland acquires Workman, it will increase the debt to 60%, at an interest rate of 9%, and the tax rate will increase to 35%.The risk-free rate is 6% and the market risk premium is 4%.Using the Compressed APV Model, what will Workman's required rate of return on equity be after it is acquired?

• A) 7.4%
• B) 8.9%
• C) 9.3%
• D) 9.6%
• E) 9.7%

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Definitions:

Psychological Barriers

Mental or emotional obstacles that hinder individuals from achieving goals, making decisions, or communicating effectively.

Cardiovascular Exercise

Physical activity that increases heart rate and improves heart, lung, and circulatory system health.

Usage Barrier

Obstacles or factors that prevent or deter consumers from using a product or service, regardless of whether they have access to it.

New-Product Adopter

An individual or entity that purchases or uses a new product relatively early in its introduction to the market.