Anheuser Busch,a manufacturer of beverages,is planning to purchase Six Flags theme parks.Anheuser Busch should use the ________ to evaluate the business of Six Flags.
A)WACC of Anheuser Busch
B)WACC of Six Flags
C)average market return
D)cost of debt
E)cost of equity

Question

Quizplus · Accepted Answer

Anheuser Busch should use the WACC (Weighted Average Cost of Capital) of Six Flags to evaluate its business. The WACC reflects the cost of all the different sources of financing used by a company, including debt and equity. By using Six Flags' WACC, Anheuser Busch can calculate the expected return on investment and decide whether the acquisition is a good business decision. The WACC of Anheuser Busch itself may not accurately reflect the returns from a Six Flags acquisition and therefore would not be the best choice. The average market return, cost of debt, and cost of equity may be useful in calculating the WACC, but they alone would not be sufficient for evaluating the business of Six Flags.

Anheuser Busch,a Manufacturer of Beverages,is Planning to Purchase Six Flags