If two leveraged firms merge, the cost of debt for the new firm will generally be lower than it was for the two firms as separate entities. One reason for this is:
A) strategic fits.
B) net operating losses.
C) surplus funds.
D) co-insurance.

Question

Quizplus · Accepted Answer

Co-insurance effect in mergers can lead to a lower cost of debt for the combined firm compared to the individual firms. This is because the merged entity is typically more diversified and thus perceived as less risky by lenders.

If Two Leveraged Firms Merge, the Cost of Debt for the New