Smart Acquires Snazzy Smart Products Plans to Acquire Snazzy Snaps, Which Will Create

question 76

Multiple Choice

Smart Acquires Snazzy
Smart Products plans to acquire Snazzy Snaps, which will create $8 million in incremental cash flows for Smart each year for the first six years. Smart Products plans to divest Snazzy Snaps at the end of the sixth year for $112,500,000. Smart's beta (b) is 1.2, and is expected to remain so after the acquisition. The risk free rate is 5 percent and the expected return on the market is 16 percent. Smart Products has a 100 percent equity capital structure which will be maintained post-acquisition.
-Refer to Smart Acquires Snazzy.If Smart Products' beta (b) falls to 0.95 post-acquisition,what would its weighted average cost of capital be?

• A) 9.05%
• B) 18.2%
• C) 12.10%
• D) 15.45%

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Definitions:

Innovation

The process of creating new ideas, products, or methods that offer novel solutions or advance the state of art or technology.

Trust

The confidence stakeholders have in a brand's reliability and integrity.

Workable Opposite

An approach that involves identifying and implementing an effective alternative strategy or solution that is distinct yet viable compared to the current method.

Brand Position

describes the unique space a brand occupies in the minds of consumers, differentiated by its products, features, and benefits from its competitors.