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Answer: not change.
## Explanation **Weighted Average Cost of Capital (WACC)** is calculated as: \[ WACC = \frac{E}{E+D} \times r_e + \frac{D}{E+D} \times r_d \times (1 - t) \] Where: - E = Market value of equity - D = Market value of debt - r_e = Cost of equity - r_d = Cost of debt - t = Tax rate **Key factors in this scenario:** 1. **Financing method**: Entirely with new equity 2. **Cost structure unchanged**: Both cost of debt (r_d) and cost of equity (r_e) remain the same 3. **Similar structure**: Both companies have similar capital structures **Analysis:** - When financing with equity only, the debt-to-equity ratio decreases - However, since both r_d and r_e remain unchanged, and the companies have similar structures, the overall WACC should remain approximately the same - The financing method doesn't change the fundamental risk profile of the combined entity **Therefore, the WACC would most likely not change.** **Answer: B**
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A company acquires another company that has a similar structure. If the acquisition is financed entirely with new equity, and both the cost of debt and the cost of equity of the issuer are not expected to change after the transaction, the WACC of the acquirer would most likely:
A
decrease.
B
not change.
C
increase.