Series 79 practice questionmediumP/E Ratio
An acquirer with a 20x P/E acquires a target with a 15x P/E entirely with stock at the target's unaffected market value, with no control premium. Ignoring synergies, the deal is most likely:
- AEPS-neutral
- BDilutive to EPS
- CAccretive to EPS✓ Correct answer
- DCannot be determined
Explanation
Why C — Accretive to EPS
If the acquirer’s P/E is higher than the target’s and the deal is stock-financed, it’s typically accretive to EPS. B is incorrect as that occurs when the target’s P/E is higher. C and D ignore the relationship between P/Es in stock deals.
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