All else equal, the cost of an acquisition will likely be higher if the acquirer uses its own common stock rather than cash to complete the purchase.

Question

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When an acquirer uses its own common stock to complete a purchase, the number of shares outstanding increases, which dilutes the ownership interest of existing shareholders. As a result, the acquirer must offer a premium on the stock price to compensate shareholders for this dilution. This premium increases the cost of the acquisition compared to using cash.

All Else Equal, the Cost of an Acquisition Will Likely