Series 79 practice questionmediumPrecedent Transaction Analysis
A banker adjusts the purchase price in a precedent transaction to account for the value of net debt at closing. What is this adjustment used to calculate?
- AEquity value of the acquirer
- BOnly the cash consideration paid
- CEnterprise value of the target✓ Correct answer
- DThe premium paid to shareholders
Explanation
Why C — Enterprise value of the target
Adjusting for net debt gives the enterprise value, which reflects the value of the company regardless of capital structure. Focusing on equity value or just cash ignores the impact of debt and cash on the transaction.
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