Accretive/dilutive technical interview question

Hi everyone, I was checking out the WSO mock interview #1, the guy asks "assuming all else being equal, which transaction is most likely to be most accretive, one that uses all cash (doesnt matter if its debt) or all equity?" does anyone know how to approach this question? It seems easy enough but for some reason, I'm very lost.

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Comments (4)

Jun 28, 2017

I think it would generally be the all-cash deal, because you're not issuing shares that will dilute your EPS. It could be dilutive, though if the incremental earnings increase is less than your interest and amortization expenses.

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Jun 28, 2017

Yeah, I was thinking the same thing but since assuming all things equal (equal EPS and P/E ratio), wouldn't that ensure that the deal does not become dilutive?

Jun 28, 2017

do you mean P/E ratio of company A and B are equal or the P/E values are respectively equal regardless of if the deal is financed through cash or stock?

Jun 28, 2017

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