2 Interview Question PLEASE HELP :)
3 main factors when looking at options/warrants?
If a company at 20x P/E buys a company at 10x P/E, what is the breakeven interest rate if the trans. is financed 100% w/ debt?
THANK YOU
3 main factors when looking at options/warrants?
If a company at 20x P/E buys a company at 10x P/E, what is the breakeven interest rate if the trans. is financed 100% w/ debt?
THANK YOU
+1,234 | Bank of America - Juniors Strike to start Monday May 6th | 144 | 11m | |
+576 | BOFA ALREADY TRYING TO COVER UP THEIR TRACKS | 73 | 4h | |
+370 | This is a dark day for Wall Street. | 36 | 37m | |
+154 | Investment Banking US League Table YTD 2024 (FactSet) | 85 | 14h | |
+148 | Big Layoff at Barclays - 5/1/24 | 86 | 4m | |
+91 | “Americans just work harder” | 54 | 12h | |
+83 | Would comitting to ATL İB be stupid? Please give feedback. | 45 | 4d | |
+69 | Sleeping on Jefferies??? | 35 | 11h | |
+61 | BofA List | 7 | 10h | |
+60 | What's up with RBC nowadays? | 28 | 8h |
Career Resources
Assuming no taxes, 10%
Could you explain? I thought P/E multiple dont matter if using 100% debt?
The target company's P/E plays a role: Since the target company has a P/E of 10, this implies that their earnings yield (inverse of P/E) is 10%. Whatever consideration is used during the transaction, the cost of financing must be less than 10% in order for the transaction to be Accretive. In this case you're solving for the break even interest rate however, so that would be 10% assuming no taxes. Assuming there are taxes, then the interest tax-shield comes into effect and to find the breakeven rate you would solve r / (1-t) = 10% where t is the tax rate and r the interest rate you're solving for.
Thank you so much, BananaCrazy3620. Huge help. Could you help me with this one?
If you have senior secured bonds at 180M and unsecured bonds at 120M, EBITDA is 50M and EBITDA multiple is 5x, what price on the dollar would they be approximately trade for? THANK YOU
If you purchase a company with 10M EBITDA and 10x P/E multiple acquiring a company with 20x P/E multiple with 50% debt/25% equity/25% cash is it Accretive or dilutive? (tax rate 40%. interest rate 5%, no foregone interest on cash)
Is this correct?
My answer: Sellers yield (inverse of P/E)- 5%. Buyers after tax cost of debt= 3%. Cost of Equity= 10%. Cost of cash= 0
Cost of acquisition= cost of cash x % of cash used + cost of debt x % of debt used + cost of equity x % of equity used
0 x .25+3 x .50+10 x .25= 4
Therefore it is Accretive?
Seller's yield is 10% so your cost would need to be the same, which gives you 10%
Culpa laborum occaecati quaerat sapiente et quia impedit. Exercitationem quia repudiandae fugiat odio rerum. Perspiciatis sunt nihil quisquam ipsam.
Tempore optio quibusdam rerum officiis voluptatum et. Similique est quisquam accusamus incidunt iusto et. Sit repudiandae vel quod est reprehenderit aut. Praesentium officia quidem expedita ut accusantium sunt. Quis ex dolorum rem nostrum animi officia dolorem et.
Error autem tenetur aut quia. Similique suscipit amet voluptatem saepe. Est eveniet et nam qui impedit. Dolorem beatae possimus ratione eaque.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...