When an acquiring firm is making the decision to offer either cash or stock for a target,it should be more inclined to offer cash if:

Question

Quizplus · Accepted Answer

When an acquiring firm has relatively low debt-to-equity ratios, it has a strong financial position to offer cash for the target. This would be beneficial for the acquiring firm as it would result in leverage ratios remaining stable and interest rates being unaffected. On the other hand, if the acquiring firm offers stock during this scenario, it may dilute the value of shares and negatively impact shareholder value. Therefore, it is best to offer cash when the acquiring firm has low debt-to-equity ratios.

When an Acquiring Firm Is Making the Decision to Offer