Acquirers may have different required rates of return because of differences in the ability to use financial leverage.

Question

Quizplus · Accepted Answer

Acquirers with a higher ability to use financial leverage may have a lower required rate of return because they can use debt to finance acquisitions and potentially increase their returns on equity. On the other hand, acquirers with lower ability to use financial leverage may require a higher required rate of return to compensate for the inability to use debt financing.

Acquirers May Have Different Required Rates of Return Because of Differences