M&A Deals and Merger Models
2024/2025 Exam Questions and Answers
| A+ Score Assured
Financial reasons one company might acquire another? - 🧠ANSWER
✔✔Economies of scale
Geographic expansion
Gain Market Share
Seller is Undervalued
Acquire Customers or Distribution Channels
Tax Reductions
Product Expension/Diversification
"Fuzzy" reasons for M&A? - 🧠ANSWER ✔✔IP/Patent/Key Tech
Defensive Acquisition
Acqui-Hire (hiring good teams)
Intangibles
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
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PRIVACY STATEMENT. ALL RIGHTS RESERVED
,Office politicis, ego, pride
Advantages/Disadvantages of Cash - 🧠ANSWER ✔✔Advantages: typically
cheapest method (interest earned on cash is typically low). Seller gets cash
immediately so don't have to deal with financing.
Disadvantages: Seller gets taxed immediately and seller can't take
advantage of potential upside of buyer stock
Advantages/Disadvantages Debt - 🧠ANSWER ✔✔Advant.:Cheaper than
stock and seller gets cash immediately
Disadvant.: Increased debt for company, financing can be expensive and
time consuming, Seller still gets taxed immediately, no upside of buyer
stock for seller
Advantages/Disadvantages Stock - 🧠ANSWER ✔✔Advant.: Can be
cheaper if buyer has high stock price and P/E multiple, can be faster then
debt financing, seller gets to participate in potential upside of buyer's stock
price, seller isn't taxed until stock is sold
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
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PRIVACY STATEMENT. ALL RIGHTS RESERVED
,Disadvant.: More risk for seller since buyer share price could change, there
may be lock-up periods for the stock and the seller might have to hold it for
a long time before selling, fixed shares vs. fixed value could make a big
impact on seller if the buyer's share price changes a lot.
Two ways of determining Cost of Equity in Merger Model? - 🧠ANSWER
✔✔1. Buyer Net Income/Buyer Equity Value
2. the reciprocal of the Buyer's P/E multiple
Different than WACC because you are looking at Cost of Equity in terms of
its impact on the company's EPS, not the company's overall discount rate.
Weighted Cost of Acquisition Equation? - 🧠ANSWER ✔✔= % Cash
Used*After-Tax Cost of Cash + %Debt Used*After-Tax Cost of Debt +
%Stock Used*After-Tax Cost of Stock
Seller's "Yield" Equation - 🧠ANSWER ✔✔Net Income/Purchase Equity
Price
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
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PRIVACY STATEMENT. ALL RIGHTS RESERVED
, The Yield is how much Net Income you get for each $1 spent on Company
B's stock.
When is a deal accretive/dilutive/neutral based on Weighted Cost of
Acquisition & Seller's Yield? - 🧠ANSWER ✔✔WCA < Yield: Accretive
WCA = Yield: Neutral
WCA > Yield: Dilutive
When company A is paying less than what Company B is yielding then the
deal is accretive.
When is a deal accretive/dilutive/neutral in a 100% stock deal? -
🧠ANSWER ✔✔Buyer P/E > Seller P/E at Purchase Price: Accretive
Buyer P/E = Seller's P/E at Purchase Price: Neutral
Buyer P/E < Seller's P/E at Purchase Price: Dilutive
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
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PRIVACY STATEMENT. ALL RIGHTS RESERVED
2024/2025 Exam Questions and Answers
| A+ Score Assured
Financial reasons one company might acquire another? - 🧠ANSWER
✔✔Economies of scale
Geographic expansion
Gain Market Share
Seller is Undervalued
Acquire Customers or Distribution Channels
Tax Reductions
Product Expension/Diversification
"Fuzzy" reasons for M&A? - 🧠ANSWER ✔✔IP/Patent/Key Tech
Defensive Acquisition
Acqui-Hire (hiring good teams)
Intangibles
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
1
PRIVACY STATEMENT. ALL RIGHTS RESERVED
,Office politicis, ego, pride
Advantages/Disadvantages of Cash - 🧠ANSWER ✔✔Advantages: typically
cheapest method (interest earned on cash is typically low). Seller gets cash
immediately so don't have to deal with financing.
Disadvantages: Seller gets taxed immediately and seller can't take
advantage of potential upside of buyer stock
Advantages/Disadvantages Debt - 🧠ANSWER ✔✔Advant.:Cheaper than
stock and seller gets cash immediately
Disadvant.: Increased debt for company, financing can be expensive and
time consuming, Seller still gets taxed immediately, no upside of buyer
stock for seller
Advantages/Disadvantages Stock - 🧠ANSWER ✔✔Advant.: Can be
cheaper if buyer has high stock price and P/E multiple, can be faster then
debt financing, seller gets to participate in potential upside of buyer's stock
price, seller isn't taxed until stock is sold
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
2
PRIVACY STATEMENT. ALL RIGHTS RESERVED
,Disadvant.: More risk for seller since buyer share price could change, there
may be lock-up periods for the stock and the seller might have to hold it for
a long time before selling, fixed shares vs. fixed value could make a big
impact on seller if the buyer's share price changes a lot.
Two ways of determining Cost of Equity in Merger Model? - 🧠ANSWER
✔✔1. Buyer Net Income/Buyer Equity Value
2. the reciprocal of the Buyer's P/E multiple
Different than WACC because you are looking at Cost of Equity in terms of
its impact on the company's EPS, not the company's overall discount rate.
Weighted Cost of Acquisition Equation? - 🧠ANSWER ✔✔= % Cash
Used*After-Tax Cost of Cash + %Debt Used*After-Tax Cost of Debt +
%Stock Used*After-Tax Cost of Stock
Seller's "Yield" Equation - 🧠ANSWER ✔✔Net Income/Purchase Equity
Price
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
3
PRIVACY STATEMENT. ALL RIGHTS RESERVED
, The Yield is how much Net Income you get for each $1 spent on Company
B's stock.
When is a deal accretive/dilutive/neutral based on Weighted Cost of
Acquisition & Seller's Yield? - 🧠ANSWER ✔✔WCA < Yield: Accretive
WCA = Yield: Neutral
WCA > Yield: Dilutive
When company A is paying less than what Company B is yielding then the
deal is accretive.
When is a deal accretive/dilutive/neutral in a 100% stock deal? -
🧠ANSWER ✔✔Buyer P/E > Seller P/E at Purchase Price: Accretive
Buyer P/E = Seller's P/E at Purchase Price: Neutral
Buyer P/E < Seller's P/E at Purchase Price: Dilutive
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
4
PRIVACY STATEMENT. ALL RIGHTS RESERVED
