Question

12

An all cash deal will have what impact on Pro Forma EPS (assuming both companies have a positive EPS):

the same level of accretion as an all share deal.

a higher accretion than an all share deal.

a higher dilution than an all share deal.

a lower accretion than an all share deal.

Answer 1

Option B is correct

An all cash deal will have a higher accretion on Pro forma EPS than an all share deal

Explanation

In a all cash deal the acquiring company pays shareholders of the target company in cash,

by paying in cash acquiring companies earnings will increase by the amount of profits made by target company, but the number of shares of the acquiring company will remain the same therefore EPS of the acquiring company will rise.

Comparing this with a all share deal the acquiring company will pay shareholders of target company by issuing its shares

by issuing shares acquiring companies earnings will increase by the amount of profits made by target company, but the number of issued shares of the acquiring company will also increase therefore

An all cash deal will have a higher accretion on Pro forma EPS than an all share deal