Question $4$

SNAP is looking to purchase a small startup Omega for their AR technology. Omega will cost $500$ million to buy out and SNAP does not want to increase their debt to equity ratio. What is the best way for SNAP to finance this purchase.

$-$ SNAP currently has $1$ B in debt and $1\mathrm{.}3$ B in equity

$-$ Interest rates are currently $\backslash (1\backslash \%\backslash )$

$-$ CAPM for SNAP common stock investors is $\backslash (7\backslash \%\backslash )$ with no dividend paid to common stock

$-$ Preferred equity dividend yield is $\backslash (5\backslash \%\backslash ).$

SNAP should use debt because rates are currently low and this can decrease the debt to equity ratio.

SNAP should use preferred equity, this can decrease the debt to equity ratio.

SNAP should use common stock equity, this can decrease the debt to equity ratio.