Mergers and Inquisitions: Merger Model Questions with Correct Answers
0 view 0 purchase
Course
2024/2025
Institution
2024/2025
Mergers and Inquisitions: Merger Model
Questions with Correct Answers
Walk me through a basic merger model - Answer-"A merger model is used to analyze the financial
profiles of 2 companies, the purchase price and how the purchase is made, and determines whether the
buyer's EPS increases or decr...
But if the deal involves cash, stock, and debt, there's no quick rule-of-thumb you can use unless you're
lightning fast with mental math.
A company with a higher P / E acquires one with a lower P / E - is this accretive or dilutive? - Answer✔✔-
Trick question. You can't tell unless you also know that it's and all-stock deal. If it's an all-cash or all-debt
deal, the P / E multiples of the buyer and seller don't matter because no stock is being issued.
Sure, generally getting more earnings for less if good and is more likely to be accretive but there's no
hard- and-fast rule unless it's an all-stock deal.
What is the rule of thumb for assessing whether an M&A deal will be accretive or dilutive? - Answer✔✔-
In an all-stock deal, if the buyer has a higher P / E than the seller, it will be accretive; if the buyer has a
lower P / E, it will be dilutive.
On an intuitive level if you're paying more for earnings than what the market values your own earnings
at, you can guess that it will be dilutive; and likewise, if you're paying less for earnings than what the
market values you own earnings at, you can guess that it would be accretive.
What are the complete effects of an acquisition? - Answer✔✔-1. Foregone interest on cash - the buyer
loses the interest it would have otherwise earned if it uses cash for the acquisition
2. Additional Interest on Debt - The buyer pays additional Interest Expense if it uses debt.
3. Additional Share Outstanding - If the buyer pays with stock, it must issue additional share.
Page 3/23
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller EmillyCharlotte. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $9.99. You're not tied to anything after your purchase.
