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Rationally financing an acquisition

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  • Sebehela, Tumellano

Abstract

This paper explores benefits of debt and equity in financing REIT acquisitions within the OPT framework. The Margrabe formula is altered in order to incorporate debt and equity. Scale invariance illustrates that debt and equity funding in REIT M&A increases the PV of receiving the stock in future if and only if the option finishes in-the-money position. On the other hand, funding has similar effects in Margrabe, B-S and asset or nothing formulas.

Suggested Citation

  • Sebehela, Tumellano, 2015. "Rationally financing an acquisition," Journal of Economics and Business, Elsevier, vol. 81(C), pages 1-20.
    • Handle: RePEc:eee:jebusi:v:81:y:2015:i:c:p:1-20
    DOI: 10.1016/j.jeconbus.2015.05.004
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    Cited by:

    1. Tumellano Sebehela, 2016. "Portfolio Formation Memory," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 11(02), pages 1-16, June.

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    More about this item

    Keywords

    Exchange option;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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