A parts manufacturer is an acquisition target for your firm. The target has $51M in...
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Accounting
A parts manufacturer is an acquisition target for your firm.
The target has $51M in debt capital, which has an average interest rate of 8.5%.
They have $80M in equity capital. The target's beta is 1.04, the risk free rate of return is 3%, and the market risk premium is 6%. The tax rate is 40%.
Your firm plans on making changes in the target's operations after the acquisition, so that the target firm's beta will be 0.65.
What is the required return for this acquisition?
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