The following data will be used to answer Questions 5-8. It will be repeated in each question.

It is January 1, 2017 and Pegasus is contemplating the acquisition of competitor Chimera. The following details are available ($ in millions except per share data):

January 1, 2017 ($ in millions)	Pegasus	Chimera
GAAP revenue	$150.40	$112.00
GAAP net income	$14.04	$9.92
Tax rate	40%	35%

What is 2017 pro forma (combined) GAAP pre-tax income?

• 9.09
• 21.66
• 36.86
• 38.66
• 39.93

It is January 1, 2017 and Pegasus is contemplating the acquisition of competitor Chimera. The following details are available ($ in millions except per share data):

January 1, 2017 ($ in millions)	Pegasus	Chimera
GAAP revenue	$150.40	$112.00
GAAP net income	$14.04	$9.92
Tax rate	40%	35%

Assume all activities below occur on January 1, 2017:

You also obtained the following transaction-related data:

Offer value	$132.0 million in cash
Sources of funds	50% of the offer value funded using Pegasuss cash reserve, currently generating a 1% annual return. Remainder of the funds needed to complete the deal raised via a new 5-year debt issuance at 5% annual interest rate.
Refinanced debt	Chimera has $5 million in debt outstanding at 4% annual interest which will be refinanced as part of the acquisition
Transaction fees	$2 million pretax
Financing fees	$1 million pretax
Cost synergies	$2 million pretax. Apply the acquirers tax rate on the cost synergies.
Revenue synergies	$1 million in additional revenue due to cross selling opportunities. Assume revenue synergies are subject to the acquirers standalone tax rate and profit margin.
Goodwill	$20 million
Asset write ups	None

What is the sum of all acquisition adjustments pertaining to the Acquisition Financing, needed to calculate 2017 pro forma (combined) GAAP pre-tax income?

Hint: There will be three components lost interest income, interest from new debt (acquisition debt & Chimera debt), and reduced Chimera debt interest.

• 21.66
• -3.10
• -3.96
• -4.01
• -4.16

It is January 1, 2017 and Pegasus is contemplating the acquisition of competitor Chimera. The following details are available ($ in millions except per share data):

January 1, 2017 ($ in millions)	Pegasus	Chimera
GAAP revenue	$150.40	$112.00
GAAP net income	$14.04	$9.92
Tax rate	40%	35%

Assume all activities below occur on January 1, 2017:

You also obtained the following transaction-related data:

Offer value	$132.0 million in cash
Sources of funds	50% of the offer value funded using Pegasuss cash reserve, currently generating a 1% annual return. Remainder of the funds needed to complete the deal raised via a new 5-year debt issuance at 5% annual interest rate.
Refinanced debt	Chimera has $5 million in debt outstanding at 4% annual interest which will be refinanced as part of the acquisition
Transaction fees	$2 million pretax
Financing fees	$1 million pretax
Cost synergies	$2 million pretax. Apply the acquirers tax rate on the cost synergies.
Revenue synergies	$1 million in additional revenue due to cross selling opportunities. Assume revenue synergies are subject to the acquirers standalone tax rate and profit margin.
Goodwill	$20 million
Asset write ups	None

What is the sum of all Pro forma Pre-tax Income acquisition adjustments pertaining to fees?

• -0.60
• -1.00
• -2.00
• -2.20
• -3.00

It is January 1, 2017 and Pegasus is contemplating the acquisition of competitor Chimera. The following details are available ($ in millions except per share data):

January 1, 2017 ($ in millions)	Pegasus	Chimera
GAAP revenue	$150.40	$112.00
GAAP net income	$14.04	$9.92
Tax rate	40%	35%

Assume all activities below occur on January 1, 2017:

You also obtained the following transaction-related data:

Offer value	$132.0 million in cash
Sources of funds	50% of the offer value funded using Pegasuss cash reserve, currently generating a 1% annual return. Remainder of the funds needed to complete the deal raised via a new 5-year debt issuance at 5% annual interest rate.
Refinanced debt	Chimera has $5 million in debt outstanding at 4% annual interest which will be refinanced as part of the acquisition
Transaction fees	$2 million pretax
Financing fees	$1 million pretax
Cost synergies	$2 million pretax. Apply the acquirers tax rate on the cost synergies.
Revenue synergies	$1 million in additional revenue due to cross selling opportunities. Assume revenue synergies are subject to the acquirers standalone tax rate and profit margin.
Goodwill	$20 million
Asset write ups	None

What is the sum of all Pro forma Pre-tax Income acquisition adjustments pertaining to Synergies, Goodwill and write-ups?

• 1.00
• 2.00
• 2.16
• 3.00
• 6.16