When a Firm with a High Market-Beta Merges with a Firm

question 55

Multiple Choice

When a firm with a high market-beta merges with a firm with a lower market-beta,

• A)the cost of capital of the combined firm will be a weighted average of the costs of capital for the individual firms.
• B)investors will require a lower rate of return on the combined firm than they would have for each individual firm due to greater diversification.
• C)the cost of capital of the combined firm will be lower due to greater diversification.
• D)Both A and B are correct statements.

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Definitions:

GABA

Gamma-Aminobutyric Acid, a neurotransmitter in the brain that plays a key role in regulating neuronal excitability and is involved in inducing relaxation and reducing anxiety.

Neurotransmitters

Chemical messengers that transmit signals across a chemical synapse, from one neuron (nerve cell) to another target neuron, muscle cell, or gland cell.

Inhibitory

Pertaining to a neurotransmitter, neuron, or process that decreases the likelihood of a neuron firing and transmitting its message to other neurons.

Hormones

Chemical messengers produced by glands in the body that regulate physiological processes and behavior.