Merging in Order to Lower Financing Costs Is Likely to Fail

Multiple Choice

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.