M&A Deals and Merger Models Exam Questions and Answers |100% Pass
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Course
2024/2025
Institution
2024/2025
M&A Deals and Merger Models Exam
Questions and Answers |100% Pass
Financial reasons one company might acquire another? - Answer-Economies of scale
Geographic expansion
Gain Market Share
Seller is Undervalued
Acquire Customers or Distribution Channels
Tax Reductions
Product Expension/Diversi...
Buyer P/E < Seller's P/E at Purchase Price: Dilutive
When the Buyer is paying less than what the Seller is yielding, EPS will be boosted
How do you calculate Forgone Interest on Cash? - Answer✔✔-Cash used* interest rate
What tax rate should you use when calculating combined Net Income? - Answer✔✔-the buyer's because
the seller becomes a subsidiary after it is purchased.
How do you calculate Accretion/Dilution? - Answer✔✔-Subtract the Standalone EPS from the Combined
EPS and divide it by the Combined to get a %.
You can also subtract Standalone from Combined to get a $ value
Why might EPS not always be a meaningful metric? - Answer✔✔-If company is private they may not care
and if acquirer has negative Net Income they it also may not care.
Issues with merger models? - Answer✔✔-- Net Income and cash flow are very different so something
based on EPS might look great, but based on cash flow look horrible
- Merger models don't capture risk of M&A deals; All cash deals would need massive differences in
Seller's EPS being above buyer's to be dilutive
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