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Merger and Acquisition consideration and valuation

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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."

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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."

When the banks consider lending the money to its debtors, the banks has to evaluate the ability of paying back the debt by the debtors. They will assess the assets, liabilities, and owners' equity as well as the cash flow of the business. If the incoming cash flow is volatile, then there is high risk that the debtor will not be able to ...

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