Merging in order to lower financing costs is likely to fail for the following reason:
A)costs of issuing larger amounts of debt increase.
B)tax shields decrease for larger companies.
C)any gain from lowering the required interest rate is offset by increased guarantees on the debt.
D)it is difficult for bondholders to calculate the postmerger debt outstanding.

Question

Quizplus · Accepted Answer

Any gain from lowering the required interest rate is often offset by the need for increased guarantees on the debt, which can negate the benefits of merging to lower financing costs.

Merging in Order to Lower Financing Costs Is Likely to Fail