Just got this question in an interview.
Buyer - P/E = 8x
Seller - P/E = 15x
Interest on cash 10% (It think this is what they gave me)
Interest on debt 10%
Tax rate 30%
Deal is done using 50% Cash and 50% debt. Is the transaction Accretive or dilutive?
In the end, they gave me the answer, but I kind of got lost and was only able to write down part of it.
They used something like 1/(10%*(1-tax rate))...and was able to determine the answer. Anyone know what they did to get the answer?
Thanks for the help.