hard · Private Equity pe-core
A public strategic buyer is evaluating an acquisition of a PE-backed company for 1B. The buyer has a P/E of 20x. The target has $50M in Net Income.
If the buyer funds the deal with 100% debt at a 5% after-tax cost, is the deal accretive or dilutive to the buyer's EPS?
- Accretive, as the target's earnings yield (5%) equals the cost of debt.
- Accretive, because any strategic acquisition is always accretive.
- Dilutive, due to the high purchase price relative to target earnings.
- Neutral, as the acquired earnings exactly offset the interest expense.
Sign up free to see the explanation and track your rank →
More Private Equity pe-core practice
- If the GP receives a 20% carry on the profit from Deal A immediately, and the fund eventua
- Following the investment, what is the investor's ownership percentage in the company, assu
- What is the Interest Coverage Ratio?
- A private equity firm is calculating a 'Public Market Equiva… — If the KS-PME score is 1.1
- A sponsor provides an 'Equity Cure' to a portfolio company. What is the standard purpose o
- What is the new effective conversion price for the growth equity investor?
- Which company will report a higher 'Gross Margin' and a higher ending 'Inventory' value on
- What is the company's Interest Coverage Ratio?