Final answer:
An all-cash transaction allows a company to gain immediate ownership without diluting shares but decreases liquidity, which can impact financial flexibility. The risks include financial burden and less liquidity, while the benefits include full control and no requirement to share profits with new shareholders. Equity is calculated as the portion of a home's value paid upfront by the owner.
Step-by-step explanation:
The reason for an all-cash transaction may include a desire for immediate ownership, avoiding the dilution of shares, or the ability to swiftly complete a transaction. However, this form of consideration can come with disadvantages such as a significant outlay of capital that could deplete the cash reserves of the acquiring company, reducing financial flexibility.
The principal risks for 3G and Berkshire Hathaway in an all-cash transaction might include the immediate financial impact and decreased liquidity which could limit their ability to fund other projects or respond to unforeseen expenses. On the other hand, the benefits may consist of maintaining full control of the acquired entity without the need to commit to future shareholder dividends or share profits with additional shareholders.
From a firm's perspective, both a bond and a bank loan require scheduled payments. However, a bond can often be transferred between investors, while a bank loan is typically between the firm and a single lender. Also, the interest rate on a bond can vary based on market conditions when it is initially sold, whereas a bank loan typically has an interest rate negotiated directly with the lender.
Regarding equity calculation, for Fred who bought a house for $200,000 with a 10% down payment, his equity would be 10% of the house's value. This is due to the down payment being the portion of the home's price that is paid upfront and represents the owner's share of the property.