Question

In an M&A deal, underwriting fees:

a)Are treated the same as advisory, legal, and accounting fees

b)Are expensed as incurred

c)Create an incremental amortization expense which reduces pro forma EPS

d)None of the above

Answer 1

Answer is option (c). Create an incremental amortization expense which reduces pro forma EPS.

Explanation;

Underwriting fees are not same as advisory, legal and accounting fees because these costs advisory, legal and accounting fees are known as direct costs and expensed as these costs incurred.

But in case of underwriting fees treatment is different from other direct costs because these costs are deducted from capital hence reduces prop forma EPS. Underwriting fees create an incremental amortization expense.

Thus option (c) is correct.