An acquisition of a "cash-rich" company immediately increases the acquiring firm's borrowing power by decreasing its financial leverage.

Question

Quizplus · Accepted Answer

When an acquiring firm acquires a cash-rich company, it adds cash to its own balance sheet, which increases the firm's liquidity and decreases its financial leverage. This, in turn, makes it easier for the company to borrow more money in the future, as it is seen as less risky by lenders.

An Acquisition of a "Cash-Rich" Company Immediately Increases the Acquiring