Consider a potential transaction between an Acquirer and a Target, as shown below:

Assume that the Target has minimal Cash and Debt and assume a 25% tax rate for both the Acquirer and the Target.

Will this deal be accretive or dilutive based on what you just calculated and the Costs of Cash, Debt, and Stock for the Acquirer? Ignore synergies, integration costs, new D&A on asset write-ups, and all acquisition effects except for the Foregone Interest on Cash, Interest on New Debt, and New Stock Used.

OPTIONS:

a. Dilutive; the Weighted Average Acquisition Cost of 3.2% is above the Targets Yield of 2.5%.

b. Accretive; the Weighted Average Acquisition Cost of 2.4% is below the Targets Yield of 2.5%.

c. Dilutive; the Weighted Average Acquisition Cost of 2.6% is above the Targets Yield of 2.5%.

d. Breakeven; the Weighted Average Acquisition Cost equals the Targets Yield of 2.5%.

Merger Model ( $ in Millions, Except Per Share Amounts in Dollars as Stated)