Do transaction fees increase EV?
Current cap structure:
Debt - $550
Cash - $50
Equity - $500
EV = $1,000
I acquire the company, incur $50 of trx fees and need to keep BS financed with the existing $50. So:
Uses:
Debt/Equity - $1,050
Trx fees - $50
TOTAL USES = $1,100
Sources:
Debt - $700
Equity - $400
TOTAL SOURCES = $1,100
PF Cap Structure:
Debt - $700
Equity - $400
Cash - $50
PF EV = $1,050
It appears EV has gone up by the transaction fees?
The decrease in cash also decreases overall equity value by the same amount. As a result, transaction fees do not affect EV.
Thanks for the comment.
So PF cap structure would be: Debt - $700 Equity - $350 Cash - $50
?
No. Your calc of EV should be independent of sources and uses.
this
Nihil suscipit beatae eveniet omnis ex fugiat error. Repudiandae illo deleniti amet voluptatem sint impedit quisquam sapiente. Recusandae modi voluptatum neque quo cupiditate illum. Sed fuga sit harum in voluptatem similique. Voluptates voluptatem quis necessitatibus eum. Asperiores provident fuga unde et recusandae ea et magni.
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...