Firm is considering the purchase of smaller firm

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For this case study, use the company you previously selected. Please respond to the following questions:

a. Describe the conditions, if any, where your business (the one you selected in Unit 1) can expect to earn an economic profit from acquiring a new, strategically related, firm after fending off four other bidders. [Chapter 10 Problem Set Question #1 on page 303].

b. Your firm is considering the purchase of a smaller firm because it believes that it can manage the assets of that firm more efficiently. The smaller firm has free cash flow. Some researchers have argued that the existence of free cash flow can lead managers in a firm to make inappropriate acquisition decisions. To avoid these problems, these authors have argued that firms should increase their debt-to-equity ratio and "soak up" free cash flow through interest and principal payments. Is free cash flow a significant problem for many firms?

c. Your firm has decided to begin selling its products in Ghana. Unfortunately, there is not a highly developed trading market for currency in Ghana. However, Ghana does have significant exports of cocoa. Describe a process by which you would be able to sell your machines in Ghana and still translate your earnings into a tradable currency (e.g., dollars or euros).

Reference no: EM132354732

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