Smart Acquires Snazzy
Smart Products plans to acquire Snazzy Snaps,which will create $8 million in incremental cash flows for Smart each year for the first six years.Smart Products plans to divest Snazzy Snaps at the end of the sixth year for $112,500,000.Smart's beta (b)is 1.2,and is expected to remain so after the acquisition.The risk free rate is 5 percent and the expected return on the market is 16 percent.Smart Products has a 100 percent equity capital structure which will be maintained post-acquisition.
-Refer to Smart Acquires Snazzy.If Smart Products' beta (b)falls to 0.95 post-acquisition,what would its weighted average cost of capital be?

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The Answer of Smart Acquires Snazzy
Smart Products plans to acquire Snazzy Snaps,which will create $8 million in incremental cash flows for Smart each year for the first six years.Smart Products plans to divest Snazzy Snaps at the end of the sixth year for $112,500,000.Smart's beta (b)is 1.2,and is expected to remain so after the acquisition.The risk free rate is 5 percent and the expected return on the market is 16 percent.Smart Products has a 100 percent equity capital structure which will be maintained post-acquisition.
-Refer to Smart Acquires Snazzy.If Smart Products' beta (b)falls to 0.95 post-acquisition,what would its weighted average cost of capital be?

Smart Acquires Snazzy Smart Products Plans to Acquire Snazzy Snaps,which Will Create $8