M&A MODELING EXAM ANSWERS FROM
WALL STREET PREP TEST BANK 2026
UPDATED QUESTIONS WITH ANSWERS
GRADED A+
⩥ Why is the Purchase Price in an M&A deal NOT equal to the Seller's
Purchase Equity Value or Purchase Enterprise Value exactly? Answer:
The real price depends on the treatment of the Seller's Cash and Debt in
the deal.
If the Buyer repays the Seller's entire Debt balance with transaction
funding and uses the Seller's entire Cash balance to fund the deal, the
real price will be close to the Purchase Enterprise Value, but that hardly
ever happens.
In most cases, the Buyer will "replace" the Seller's existing Debt with
new Debt, which doesn't affect the cash price. And the Buyer hardly ever
uses the Seller's entire Cash balance to fund the deal - at most, it might
use a portion of it.
So the real price the Buyer pays is usually between the Purchase Equity
Value and Purchase Enterprise Value of the Seller. Many other issues,
such as the transaction fees and the treatment of Preferred Stock, Capital
Leases, and Unfunded Pensions, also explain this difference.
⩥ What information do you need from the Buyer and Seller to create a
full merger model? Answer: At the minimum, you need Income
Statement projections for both companies over the next 1-2 years. But
, ideally, you will also create cash-flow projections that show how both
companies' Cash and Debt balances change over time.
You do not need full 3-statement projections for both companies -
similar to a DCF analysis, cash flow estimates without full Balance
Sheet projections are fine.
⩥ Why is a Sources & Uses schedule important in a full merger model?
Answer: The Sources & Uses schedule is important because it tells you
how much the Buyer really pays for the Seller.
The Purchase Equity Value and Purchase Enterprise Value can be
deceptive for the reasons outlined above.
But with the S&U schedule, you add up the total cost of acquiring the
company - its shares, any refinanced Debt, and any transaction fees - and
then show the amount of Cash, Debt, and Stock that will be used to pay
for it.
The S&U schedule is also helpful for reflecting more unusual scenarios,
such as a Seller using some of its Cash in the deal or a Buyer repaying
its own Debt.
⩥ What's the purpose of a Purchase Price Allocation schedule in a
merger model? Answer: The main purpose is to estimate the Goodwill
that will be created in a deal.
Goodwill exists because Buyers often pay far more for companies than
their Balance Sheets suggest they are worth; in other words, the
Purchase Equity Value exceeds the acquired company's Common
Shareholders' Equity (CSE).
WALL STREET PREP TEST BANK 2026
UPDATED QUESTIONS WITH ANSWERS
GRADED A+
⩥ Why is the Purchase Price in an M&A deal NOT equal to the Seller's
Purchase Equity Value or Purchase Enterprise Value exactly? Answer:
The real price depends on the treatment of the Seller's Cash and Debt in
the deal.
If the Buyer repays the Seller's entire Debt balance with transaction
funding and uses the Seller's entire Cash balance to fund the deal, the
real price will be close to the Purchase Enterprise Value, but that hardly
ever happens.
In most cases, the Buyer will "replace" the Seller's existing Debt with
new Debt, which doesn't affect the cash price. And the Buyer hardly ever
uses the Seller's entire Cash balance to fund the deal - at most, it might
use a portion of it.
So the real price the Buyer pays is usually between the Purchase Equity
Value and Purchase Enterprise Value of the Seller. Many other issues,
such as the transaction fees and the treatment of Preferred Stock, Capital
Leases, and Unfunded Pensions, also explain this difference.
⩥ What information do you need from the Buyer and Seller to create a
full merger model? Answer: At the minimum, you need Income
Statement projections for both companies over the next 1-2 years. But
, ideally, you will also create cash-flow projections that show how both
companies' Cash and Debt balances change over time.
You do not need full 3-statement projections for both companies -
similar to a DCF analysis, cash flow estimates without full Balance
Sheet projections are fine.
⩥ Why is a Sources & Uses schedule important in a full merger model?
Answer: The Sources & Uses schedule is important because it tells you
how much the Buyer really pays for the Seller.
The Purchase Equity Value and Purchase Enterprise Value can be
deceptive for the reasons outlined above.
But with the S&U schedule, you add up the total cost of acquiring the
company - its shares, any refinanced Debt, and any transaction fees - and
then show the amount of Cash, Debt, and Stock that will be used to pay
for it.
The S&U schedule is also helpful for reflecting more unusual scenarios,
such as a Seller using some of its Cash in the deal or a Buyer repaying
its own Debt.
⩥ What's the purpose of a Purchase Price Allocation schedule in a
merger model? Answer: The main purpose is to estimate the Goodwill
that will be created in a deal.
Goodwill exists because Buyers often pay far more for companies than
their Balance Sheets suggest they are worth; in other words, the
Purchase Equity Value exceeds the acquired company's Common
Shareholders' Equity (CSE).
