The Appropriate Discount Rate in Merger Analysis Is

Multiple Choice

The appropriate discount rate in merger analysis is:

A) the acquirer's cost of capital because a merger is essentially a capital budgeting project.
B) the acquirer's cost of equity because mergers are risky and a rate above the cost of capital is appropriate.
C) the target's cost of equity because it best approximates the usually high risk inherent in this type of equity transaction.
D) a judgmental rate reflecting the risk inherent in the transaction.