Acquirer: market cap $200m, P/E 20x, 100m shares. Target: market cap $100m, P/E 10x. Assume a 5% pre-tax cost of debt, $5m of pre-tax synergies, 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

10. Target NI = $100m / 10 = $10m.

Acquirer: market cap $200m, P/E 20x, 100m shares. Target: market cap $100m, P/E 10x. Assume a 5% pre-tax cost of debt, $5m of pre-tax synergies, 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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Acquirer: market cap $200m, P/E