In part c, for option 2 & 3 they have calculated the opportunity cost for cash surpluses. Then in option 1, why they have not calculated the interest that we will earn from cash surplus that we will have of 220+64 and will not be used anywhere?
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Louieed co (mar/jun 16)
6y ago
6y ago#1The question says that the debt funding needed will be reduced instantly by the cash balances. So there won't be any cash to earn interest.
6y ago#2But in option 1 there is share for share exchange so why we will require the debt in this option?
6y ago#3Sorry - I read your question too quickly and thought you were referring to options 2 and 3 :-(
The reason is that the profits after tax will already be including the interest.
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