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In the solution provided for question b part ii. On the very very last paragraph he says the implication for the cost of CAPITAL will depend on the bid price and the way in which the acquisition value is distributed amongst the two groups of shareholders.
I am struggling to pick up the point how this will effect the cost of capital. I could get his logic in the first paragraph about market gearing but not this one. Could you elaborate on this point sir please. ThanksIt is really stating the effect of the previous sentence.
The gearing will depend on what happens to the market value of the Burcolene’s equity, which will depend on how much of the gain goes to Burcolene’s shareholders (as opposed to PetroFrancais’ shareholders) – a change in the gearing will effect the WACC.
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