Technical Questions: · What makes a proposed acquisition accretive? · Suppose a proposed acquisition is accretive, how would you make it less accretive? · What are the main factors in determining if a deal will be accretive or dilutive? · Walk me through how the purchase of equipment effects the 3 statements. · Walk me through the effects on the 3 statements given that a firm has to retroactively change the method of depreciation for last year’s financial statements. Previously, the firm’s fixed assets carrying value was $100M, with no salvage value, an estimated useful life of 10 years, and straight line depreciation. The salvage value has been determined to be $50M, but the useful life of the asset and method of depreciation has not changed. o Effect on Cash? Cash Flow Statement? o Effect on Earnings? o Effect on EBT? o Effect to Depreciation Expense? o Effect on Income Tax Expense? o Effect on Deferred Taxes? o Effect on Balance Sheet? Effect to Assets? Liabilities? Owners Equity?
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How many years has gone by for Depreciation?
Maybe one year- if so: No effect on Cash flow statement or cash (Depreciation does not involve in/outflow of cash Depending on the tax rate, earnings will decrease by 4.4M x Tax rate each year. EBT = less 4.4M Dep Expense will be 10M first year, 4.4M every year after that, 9th year will be 4.4, 10th year will not have DEP IT Expense will increase Not sure on DT Balance Sheet- assets will decrease, as will L and OE
i think your getting it really mixed up...
Facts, before amort was 10 mil per yr over 10 yrs, now its 5 mil per yr over 10 yrs.
it does depend on number of years but it says change is retroactive so really you really need at least 1 yr to make it relevant.
your income statement will have a higher EBT, equal to the $5 million, which leads to a tax liability equal to $5 mil X Tr. The increase in EBT will lead Earnings to increase by $5 mil X (1-Tr). So just based on that you have a higher dep expense, higher earnings, and higher taxes.
For your cash flow your going to get a higher NI for operating cash flow but your addition back of d&a is 5 mil less, so your higher net income equal to $5 mil X (1-Tr) is offset and leads to even less operating cash flow equal to $5 mil X Tr. This is not a cash obligation as its retroactive so you will have a tax liability for this amount on your balance sheet of $5 mil X Tr. As well, RE on the balance sheet increase by 5 mil X (1-Tr). Your cap assets increase by $5 mil since you depreciate at a slower rate. That makes the BS balance. Thats all I can think of really.
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