Respond to the following comments. a. Our cost of debt is too darn high, but our banks

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Respond to the following comments.

a. “Our cost of debt is too darn high, but our banks won’t reduce interest rates as long as we’re stuck in this volatile widget-trading business. We’ve got to acquire other companies with safer income streams.”

b. “Merge with Fledgling Electronics? No way! Their P/E’s too high. That deal would knock 20 percent off our earnings per share.”

c. “Our stock’s at an all-time high. It’s time to make our offer for Digital Organics. Sure, we’ll have to offer a hefty premium to Digital stockholders, but we don’t have to pay in cash. We’ll give them new shares of our stock.”

Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking...
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Principles of Corporate Finance

ISBN: 978-0072869460

7th edition

Authors: Richard A. Brealey, Stewart C. Myers

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