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This is becoming obnoxious. This is laughable not "tricky" and you don't need a different thread for each question
Sorry!
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?
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