Answered: What is the appropriate discount rate…

What is the appropriate discount rate for RiverRocks to use to evaluate the acquisition? Why? The appropriate discount rate for RiverRocks to use to evaluate the acquisition is ___%.

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter5: Business Deductions

Section: Chapter Questions

Problem 49P

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Question

10.) RiverRocks (whose WACC is 12.6%) is considering an acquisition of Raft Adventures (whose WACC is 15.2%). What is the appropriate discount rate for RiverRocks to use to evaluate the acquisition? Why? The appropriate discount rate for RiverRocks to use to evaluate the acquisition is ___%. (Round to one decimal place.) Why? (Select the best choice below.)

RiverRocks (whose WACC is 12.6%) is considering an acquisition of Raft Adventures (whose WACC is 15.2%). What is the appropriate discount rate for RiverRocks
to use to evaluate the acquisition? Why?
The appropriate discount rate for RiverRocks to use to evaluate the acquisition is %. (Round to one decimal place.)
Why? (Select the best choice below.)
O A. An average WACC from RiverRocks and Raft Adventures will best account for the risk of Raft Adventures' cash flows.
O B. RiverRocks' WACC is the most appropriate discount rate to account for the risk of Raft Adventures' cash flows.
OC. Raft Adventures' WACC is the most appropriate discount rate to account for the risk of Raft Adventures' cash flows.
O D. The risk-free rate will best account for the risk of Raft Adventures' cash flows since RiverRocks will pay cash for the transaction.

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