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PART B (ii):
Implication of an acquisition on its gearing and cost of capital.
In model answers the authors uses the terms surplus shareholders value, market gearing and acquisition value I don’t get these terms. Could you please explain these 3 terms John. Thank youSurplus shareholder value is the extra value of the shares as a result of the acquisition.
Market gearing is the gearing based on the market values of debt and equity (as opposed to the book values).
Acquisition value is the amount paid to shareholders of the company being acquired.
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