QUESTION#2 Company A is looking to acquire Company B through a combination of cash and shares. You have been assigned to determine the accretion or dilution to Company A's earnings. Company B is being acquired for $2 per share and in addition each Company B share will be exchangeable for 0.25% Company A shares. In addition, Company A has no cash on hand; it will raise additional funds in debt to pay down Company B's obligations and to fund transaction fees upon acquisition. Some key assumptions are noted below: Key Market Data $2 Company A Company B Price $8 Shares 100MM 50MM Options 25MM 10MM @ Strike Price $15 $3 Balance Sheet Items: Company A has $250MM debt and a book value of $500MM. Company B has $100MM debt and a book value of $150MM. Income Statement Items: Company A EBIT is expected to be $250MM. Company B EBIT is expected to be $50MM. Key Assumptions: 9% interest on LTD 40% tax rate 3% of total EBIT cost savings Intangible asset allocation is 25% and amortized over 15 years Fees 20% purchase price QUESTION#2 Company A is looking to acquire Company B through a combination of cash and shares. You have been assigned to determine the accretion or dilution to Company A's earnings. Company B is being acquired for $2 per share and in addition each Company B share will be exchangeable for 0.25% Company A shares. In addition, Company A has no cash on hand; it will raise additional funds in debt to pay down Company B's obligations and to fund transaction fees upon acquisition. Some key assumptions are noted below: Key Market Data $2 Company A Company B Price $8 Shares 100MM 50MM Options 25MM 10MM @ Strike Price $15 $3 Balance Sheet Items: Company A has $250MM debt and a book value of $500MM. Company B has $100MM debt and a book value of $150MM. Income Statement Items: Company A EBIT is expected to be $250MM. Company B EBIT is expected to be $50MM. Key Assumptions: 9% interest on LTD 40% tax rate 3% of total EBIT cost savings Intangible asset allocation is 25% and amortized over 15 years Fees 20% purchase price