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Exam Code: BL00100-101-E
Exam Name: Nokia Bell Labs End-to-End 5G Foundation Certification Exam
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NEW QUESTION: 1
A common mistake in valuing the entity to be acquired in a business combination is:
A. Including incremental cash flows in the valuation.
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C. Including all related transaction costs associated with an acquisition.
D. Using market values in the valuation.
If the net incremental cash flows to the acquirer's shareholders are to be valued, the discount rate used should be the cost of equity capital. Moreover, this rate should reflect the risk associated with the use of funds rather than their source. The rate therefore should not be the cost of capital of the acquirer but rather the cost of equity of the combined entity after the combination. This calculation requires a new estimate of beta to be used in the Capital Asset Pricing Model.
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