When analyzing a potential merger's cash flows, the most appropriate discount rate is the acquiring firms cost of capital.

Question

Quizplus · Accepted Answer

The acquiring firm's cost of capital, which represents the rate of return required by investors, is the most appropriate discount rate for analyzing potential merger cash flows. This is because the acquiring firm is the one making the investment decision and will be responsible for the cash flows generated by the merged entity.

When Analyzing a Potential Merger's Cash Flows, the Most Appropriate