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Problem:

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

Required:

Question 1: Is the executive correct in predicting that ROE will fall?

Question 2: How important should changes in ROE be in this decision?

Note: Please provide through step by step calculations.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91148830

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