quick modeling question
In a cash merger, how many years into the future does the interest income lost on cash used affect projected EPS?
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please help!
does this assume you're trying to pay it back quickly like in an lbo? if so, you might be stuck with min cash for a couple of years.
I think it mostly depends on how quickly you're paying down your debt, someone correct me if I'm wrong.
No, it's just for a standard cash/stock merger, no debt involved
If I'm getting your question correctly, then the answer is throughout the entire span of the model. If you have a set of projections for five years, all of which include assumed cash interest income on the current cash balance, and then you acquire a company using cash, you need to basically back out the cash interest income in all those years (that's what the foregone interest income on cash used line is for).
That only applies, however, if you don't have a separate pro forma balance sheet/debt schedule that is calculating interest expense/interest income separately. If you do, interest expense/income should come directly from there and will be based on the pro forma entity's projected cash & debt balances going forward (and the assumed interest rates). In this case, no foregone interest line is required, as the projections are pulling the interest expense line directly from the pro forma numbers.
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