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REVIEW: M&A MODELING EXAM
Question 1
The intangible assets of a company getting acquired were written up for BOTH book and tax purposes from a pre-deal
book value of $50m to
$60m as part of the acquisition accounting. The companyʼs definite-lived intangible assets are amortized on a
straight-line basis over 15 years for both book and tax purposes. Also assume the acquirer has a tax rate of 40%.
Assume the purchase price exceeds the fair value of net assets. What is the impact of the write-up on the goodwill
recorded in the acquisition?
A decline in goodwill of $10m
An increase in goodwill of
$6m A
decline in goodwill of $6m
An increase in goodwill of $10m
No impact on
goodwill
Question 2
The intangible assets of a company getting acquired were written up for book purposes from a pre-deal book
value of $50m to
$60m but NOT for tax purposes, where the tax basis remained $50m. Assume that targetʼs definite lived
intangible assets are amortized on a
straight-line basis over 15 years for both book and tax purposes. Also assume that the acquirer has a tax rate of 40%.
What is value of created Deferred Tax Liabilities as a result of the book write-up and no tax step up? No new
Deferred Tax
Liabilities
New Deferred Tax Liabilities of $4m
New Deferred Tax Liabilities of
$6m New Deferred Tax Liabilities of
$10m New Deferred Tax Liabilities of
$50m
Question 3
The intangible assets of a company getting acquired were written up for book purposes from a pre-deal book value
of $50m to
$60m but NOT for tax purposes, where the tax basis remained $50m. Assume that targetʼs definite lived intangible
assets are amortized on a
straight-line basis over 15 years for both book and tax purposes. Also assume that the acquirer has a tax rate of 40%.
What is the impact on goodwill as a result of the book write-up and no tax step up?
No
impact on
goodwill
Goodwill
,is lower by
$6 m
Goodwill is
higher by
$6 m
Goodwill is
higher by
$4m
Question 4
It is January 1, 2017. Glocabe Networks is contemplating the acquisition of competitor Jupiter Networks by
issuing stock to purchase target shares (stock purchase). The following details are available:
, January 1, 2017 Glo Ju
cabe piter
Current share price $3 $5
0.00 0.00
Offer price $6
0.00
Diluted shares outstanding (mm) 4.5 2.
2
2017 GAAP earnings per share (EPS) $3. $4
forecast 12 .51
Glocabe and Jupiterʼs diluted shares outstanding have not changed since January 1,
2016. You may assume the companies have the same tax rate.
What is the 2017 accretion/dilution in Glocabeʼs GAAP EPS assuming the acquisition took place on January 1, 2017?
$0.19
$0.96
-$0.43
-$1.54
-$0.24
Question 5
The following data will be used to answer Questions 5-8. It will be repeated in each question.
It is January 1, 2017 and Pegasus is contemplating the acquisition of competitor Chimera. The following details are available
REVIEW: M&A MODELING EXAM
Question 1
The intangible assets of a company getting acquired were written up for BOTH book and tax purposes from a pre-deal
book value of $50m to
$60m as part of the acquisition accounting. The companyʼs definite-lived intangible assets are amortized on a
straight-line basis over 15 years for both book and tax purposes. Also assume the acquirer has a tax rate of 40%.
Assume the purchase price exceeds the fair value of net assets. What is the impact of the write-up on the goodwill
recorded in the acquisition?
A decline in goodwill of $10m
An increase in goodwill of
$6m A
decline in goodwill of $6m
An increase in goodwill of $10m
No impact on
goodwill
Question 2
The intangible assets of a company getting acquired were written up for book purposes from a pre-deal book
value of $50m to
$60m but NOT for tax purposes, where the tax basis remained $50m. Assume that targetʼs definite lived
intangible assets are amortized on a
straight-line basis over 15 years for both book and tax purposes. Also assume that the acquirer has a tax rate of 40%.
What is value of created Deferred Tax Liabilities as a result of the book write-up and no tax step up? No new
Deferred Tax
Liabilities
New Deferred Tax Liabilities of $4m
New Deferred Tax Liabilities of
$6m New Deferred Tax Liabilities of
$10m New Deferred Tax Liabilities of
$50m
Question 3
The intangible assets of a company getting acquired were written up for book purposes from a pre-deal book value
of $50m to
$60m but NOT for tax purposes, where the tax basis remained $50m. Assume that targetʼs definite lived intangible
assets are amortized on a
straight-line basis over 15 years for both book and tax purposes. Also assume that the acquirer has a tax rate of 40%.
What is the impact on goodwill as a result of the book write-up and no tax step up?
No
impact on
goodwill
Goodwill
,is lower by
$6 m
Goodwill is
higher by
$6 m
Goodwill is
higher by
$4m
Question 4
It is January 1, 2017. Glocabe Networks is contemplating the acquisition of competitor Jupiter Networks by
issuing stock to purchase target shares (stock purchase). The following details are available:
, January 1, 2017 Glo Ju
cabe piter
Current share price $3 $5
0.00 0.00
Offer price $6
0.00
Diluted shares outstanding (mm) 4.5 2.
2
2017 GAAP earnings per share (EPS) $3. $4
forecast 12 .51
Glocabe and Jupiterʼs diluted shares outstanding have not changed since January 1,
2016. You may assume the companies have the same tax rate.
What is the 2017 accretion/dilution in Glocabeʼs GAAP EPS assuming the acquisition took place on January 1, 2017?
$0.19
$0.96
-$0.43
-$1.54
-$0.24
Question 5
The following data will be used to answer Questions 5-8. It will be repeated in each question.
It is January 1, 2017 and Pegasus is contemplating the acquisition of competitor Chimera. The following details are available
