A capital structure argument (that leverage increases value)is often used to show that a large acquisition price premium is justified even though the target has little debt before the acquisition.

Question

Quizplus · Accepted Answer

The capital structure argument suggests that increasing leverage can lead to an increase in value, which can in turn justify a higher acquisition price. This argument can be used even if the target company has little debt before the acquisition. Therefore, Option A is correct.

A Capital Structure Argument (That Leverage Increases Value)is Often Used