M&A MODELING EXAM ANSWERS FROM
WALL STREET PREP ACTUAL EXAM PAPER
2026 COMPLETE QUESTIONS AND
ANSWERS GRADED A+
⩥ Why might an M&A deal be accretive or dilutive? Answer: A deal is
accretive if the extra Pre-Tax Income from a Seller exceeds the cost of
the acquisition
in the form of the Foregone Interest on Cash, Interest Paid on New Debt,
and New Shares
Issued.
For example, if the Seller contributes $100 in Pre-Tax Income, but the
deal costs the Buyer only
$70 in additional Interest Expense, and the Buyer doesn't issue any new
shares, the deal will be
accretive because the Buyer's Earnings per Share (EPS) will increase.
A deal will be dilutive if the opposite happens. For example, if the Seller
contributes $100 in
Pre-Tax Income, but the deal costs the Buyer $130 in additional Interest
Expense, and its share
,count remains the same, its EPS will decrease.
⩥ How can you tell whether an M&A deal will be accretive or dilutive?
Answer: You compare the Weighted Cost of Acquisition to the Seller's
Yield at the Purchase Price.
• Cost of Cash = Foregone Interest Rate on Cash * (1 - Buyer's Tax
Rate)
• Cost of Debt = Interest Rate on New Debt * (1 - Buyer's Tax Rate)
• Cost of Stock = Reciprocal of the Buyer's P / E multiple, i.e., Net
Income / Equity Value.
• Seller's Yield = Reciprocal of the Seller's P / E multiple, calculated
using the Purchase Equity Value.
Weighted Cost of Acquisition = % Cash Used * Cost of Cash + % Debt
Used * Cost of Debt + % Stock Used * Cost of Stock.
If the Weighted Cost is less than the Seller's Yield, the deal will be
accretive; if the Weighted Cost is greater than the Seller's Yield, the deal
will be dilutive.
, ⩥ Are there any shortcuts for guesstimating whether an M&A deal will
be accretive or dilutive? Answer: If it is a 100% Stock deal, you can
compare the Buyer's P / E multiple to the Seller's P / E multiple at the
purchase price. If the Buyer's multiple is higher, the deal will be
accretive.
This works because the reciprocals of the P / E multiples in a 100%
Stock deal are the Weighted
Cost of Acquisition and the Seller's Yield.
For example, let's say the Buyer's P/E multiple is 10x, and the Weighted
Cost of Acquisition is
10%.
If the Seller's Current Equity Value is $1000, the Buyer pays a 20%
premium, and the Seller's Net Income is $200, its P / E multiple at the
purchase price is $1200 / $200 = 6x.
Therefore, a 100% Stock version of this deal is accretive because the
Seller's Yield is = 16.7%, which is higher than the Weighted Cost of
Acquisition.
⩥ How do you determine the Purchase Price in an M&A deal? Answer:
If the Seller is public, you assume a premium to the Seller's current share
price based on the average premiums for similar deals in the market
WALL STREET PREP ACTUAL EXAM PAPER
2026 COMPLETE QUESTIONS AND
ANSWERS GRADED A+
⩥ Why might an M&A deal be accretive or dilutive? Answer: A deal is
accretive if the extra Pre-Tax Income from a Seller exceeds the cost of
the acquisition
in the form of the Foregone Interest on Cash, Interest Paid on New Debt,
and New Shares
Issued.
For example, if the Seller contributes $100 in Pre-Tax Income, but the
deal costs the Buyer only
$70 in additional Interest Expense, and the Buyer doesn't issue any new
shares, the deal will be
accretive because the Buyer's Earnings per Share (EPS) will increase.
A deal will be dilutive if the opposite happens. For example, if the Seller
contributes $100 in
Pre-Tax Income, but the deal costs the Buyer $130 in additional Interest
Expense, and its share
,count remains the same, its EPS will decrease.
⩥ How can you tell whether an M&A deal will be accretive or dilutive?
Answer: You compare the Weighted Cost of Acquisition to the Seller's
Yield at the Purchase Price.
• Cost of Cash = Foregone Interest Rate on Cash * (1 - Buyer's Tax
Rate)
• Cost of Debt = Interest Rate on New Debt * (1 - Buyer's Tax Rate)
• Cost of Stock = Reciprocal of the Buyer's P / E multiple, i.e., Net
Income / Equity Value.
• Seller's Yield = Reciprocal of the Seller's P / E multiple, calculated
using the Purchase Equity Value.
Weighted Cost of Acquisition = % Cash Used * Cost of Cash + % Debt
Used * Cost of Debt + % Stock Used * Cost of Stock.
If the Weighted Cost is less than the Seller's Yield, the deal will be
accretive; if the Weighted Cost is greater than the Seller's Yield, the deal
will be dilutive.
, ⩥ Are there any shortcuts for guesstimating whether an M&A deal will
be accretive or dilutive? Answer: If it is a 100% Stock deal, you can
compare the Buyer's P / E multiple to the Seller's P / E multiple at the
purchase price. If the Buyer's multiple is higher, the deal will be
accretive.
This works because the reciprocals of the P / E multiples in a 100%
Stock deal are the Weighted
Cost of Acquisition and the Seller's Yield.
For example, let's say the Buyer's P/E multiple is 10x, and the Weighted
Cost of Acquisition is
10%.
If the Seller's Current Equity Value is $1000, the Buyer pays a 20%
premium, and the Seller's Net Income is $200, its P / E multiple at the
purchase price is $1200 / $200 = 6x.
Therefore, a 100% Stock version of this deal is accretive because the
Seller's Yield is = 16.7%, which is higher than the Weighted Cost of
Acquisition.
⩥ How do you determine the Purchase Price in an M&A deal? Answer:
If the Seller is public, you assume a premium to the Seller's current share
price based on the average premiums for similar deals in the market
