Acquirer: market cap $1,000m, P/E 10x, 100m shares. Target: market cap $300m, P/E 6x. Assume a 10% pre-tax cost of debt and a 20% tax rate. Is the deal accretive under (1) an all-debt deal and (2) a 50% debt / 50% stock deal?

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IBPrep · Accepted Answer

00. Target NI = $300m / 6 = $50m.

Acquirer: market cap $1,000m, P/E 10x, 100m shares. Target: market cap $300m, P/E 6x. Assume a 10% pre-tax cost of debt and a 20% tax rate. Is the deal accretive under (1) an all-debt deal and (2) a 50% debt / 50% stock deal?

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