Problem

Your firm is considering the acquisition of a very promising technology company. One execu...

Your firm is considering the acquisition of a very promising technology company. One executive argues against the move, pointing outthat because the technology company is presently losing money, theacquisition will cause your firm’s return on equity to fall.

a. Is the executive correct in predicting that ROE will fall?


b. How important should changes in ROE be in this decision?

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Solutions For Problems in Chapter 2