M&A MODELING EXAM ANSWERS FROM
WALL STREET PREP LATEST 2025-2026
QUESTIONS AND ANSWERS| ACE THE TEST
the following happened in a recent M&A transaction: 1. PP&E of the
target company was increased from its original book basis of $600
million to $800 million to reflect fair market value for book purposes in
accordance with the purchase method of accounting. 2. no "step-up" for
tax purposes. 3. original tax basis of $650 million. assuming a corporate
tax rate of 35% for book purposes, the company should record the
following - Answer-A deferred tax liability equal to $52.5 million
An acquisition creates shareholder value: - Answer-when a company
acquires a business whose fundamental value is higher than the purchase
price
• Acquirer purchases 100% of target by issuing additional stock to
purchase target shares
• No premium is offered to the current target share price
• Acquirer share price at announcement is $30
• Target share price at announcement is $50
• Acquirer EPS next year is $3.00
• Target EPS next year is $2.00
• Acquirer has 4 thousand shares outstanding
, • Target has 2 thousand shares outstanding
What is the exchange ratio for the deal? - Answer-1.7x
• Acquirer purchases 100% of target by issuing additional stock to
purchase target shares
• No premium is offered to the current target share price
• Acquirer share price at announcement is $30
• Target share price at announcement is $50
• Acquirer EPS next year is $3.00
• Target EPS next year is $2.00
• Acquirer has 4 thousand shares outstanding
• Target has 2 thousand shares outstanding
Assuming a 40% tax rate, what are the necessary pre-tax synergies
needed to break-even? - Answer-
Pushdown accounting: - Answer-Refers to the establishment of a new
accounting and reporting basis in an acquired company's separate
financial statements
Use the following information to answer the question below:• Acquirer
purchases 100% of target by issuing $100 million in new debt to
purchase target shares, carrying an interest rate of 10%
• Excess cash is used to help pay for the acquisition
WALL STREET PREP LATEST 2025-2026
QUESTIONS AND ANSWERS| ACE THE TEST
the following happened in a recent M&A transaction: 1. PP&E of the
target company was increased from its original book basis of $600
million to $800 million to reflect fair market value for book purposes in
accordance with the purchase method of accounting. 2. no "step-up" for
tax purposes. 3. original tax basis of $650 million. assuming a corporate
tax rate of 35% for book purposes, the company should record the
following - Answer-A deferred tax liability equal to $52.5 million
An acquisition creates shareholder value: - Answer-when a company
acquires a business whose fundamental value is higher than the purchase
price
• Acquirer purchases 100% of target by issuing additional stock to
purchase target shares
• No premium is offered to the current target share price
• Acquirer share price at announcement is $30
• Target share price at announcement is $50
• Acquirer EPS next year is $3.00
• Target EPS next year is $2.00
• Acquirer has 4 thousand shares outstanding
, • Target has 2 thousand shares outstanding
What is the exchange ratio for the deal? - Answer-1.7x
• Acquirer purchases 100% of target by issuing additional stock to
purchase target shares
• No premium is offered to the current target share price
• Acquirer share price at announcement is $30
• Target share price at announcement is $50
• Acquirer EPS next year is $3.00
• Target EPS next year is $2.00
• Acquirer has 4 thousand shares outstanding
• Target has 2 thousand shares outstanding
Assuming a 40% tax rate, what are the necessary pre-tax synergies
needed to break-even? - Answer-
Pushdown accounting: - Answer-Refers to the establishment of a new
accounting and reporting basis in an acquired company's separate
financial statements
Use the following information to answer the question below:• Acquirer
purchases 100% of target by issuing $100 million in new debt to
purchase target shares, carrying an interest rate of 10%
• Excess cash is used to help pay for the acquisition
