M&I 400 Merger Model (Basic &
Advanced) 2026 Exam
Questions and Answers | 100%
Solved
Walk me through a basic merger model. - 🧠 ANSWER ✔✔"A merger model
is used to analyze the financial profiles of 2 companies, the purchase price
and how the purchase is made, and determines whether the buyer's EPS
increases or decreases.
,Step 1 is making assumptions about the acquisition - the price and whether
it was cash, stock or debt or some combination of those. Next, you
determine the valuations and shares outstanding of the buyer and seller
and project out an Income Statement for each one.
Finally, you combine the Income Statements, adding up line items such as
Revenue and Operating Expenses, and adjusting for Foregone Interest on
Cash and Interest Paid on Debt in the Combined Pre-Tax Income line; you
apply the buyer's Tax Rate to get the Combined Net Income, and then
divide by the new share count to determine the combined EPS."
What's the difference between a merger and an acquisition? - 🧠 ANSWER
✔✔There's always a buyer and a seller in any M&A deal - the difference
between "merger" and "acquisition" is more semantic than anything. In a
merger the companies are close to the same size, whereas in an
acquisition the buyer is significantly larger.
Why would a company want to acquire another company? - 🧠 ANSWER
✔✔Several possible reasons:
,1. The buyer wants to gain market share by buying a competitor.
2. The buyer needs to grow more quickly and sees an acquisition as a way
to do that.
3. The buyer believes the seller is undervalued.
4. The buyer wants to acquire the seller's customers so it can up-sell and
cross-sell to them.
5. The buyer thinks the seller has a critical technology, intellectual property
or some other "secret sauce" it can use to significantly enhance its
business.
6. The buyer believes it can achieve significant synergies and therefore
make the deal
accretive for its shareholders.
Why would an acquisition be dilutive? - 🧠 ANSWER ✔✔An acquisition is
dilutive if the additional amount of Net Income the seller contributes is not
enough to offset the buyer's foregone interest on cash, additional interest
paid on debt, and the effects of issuing additional shares.
COPYRIGHT©NINJANERD 2025/2026. YEAR PUBLISHED 2026. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE. PRIVACY
STATEMENT. ALL RIGHTS RESERVED
3
, Acquisition effects - such as amortization of intangibles - can also make an
acquisition dilutive.
Is there a rule of thumb for calculating whether an acquisition will be
accretive or dilutive? - 🧠 ANSWER ✔✔If the deal involves just cash and
debt, you can sum up the interest expense for debt and the foregone
interest on cash, then compare it against the seller's Pre-Tax Income.
And if it's an all-stock deal you can use a shortcut to assess whether it is
accretive (see question #5).
But if the deal involves cash, stock, and debt, there's no quick rule-of-
thumb you can use unless you're lightning fast with mental math.
A company with a higher P/E acquires one with a lower P/E - is this
accretive or dilutive? - 🧠 ANSWER ✔✔Trick question. You can't tell unless
you also know that it's an all-stock deal. If it's an all-cash or all-debt deal,
the P/E multiples of the buyer and seller don't matter because no stock is
being issued.
Advanced) 2026 Exam
Questions and Answers | 100%
Solved
Walk me through a basic merger model. - 🧠 ANSWER ✔✔"A merger model
is used to analyze the financial profiles of 2 companies, the purchase price
and how the purchase is made, and determines whether the buyer's EPS
increases or decreases.
,Step 1 is making assumptions about the acquisition - the price and whether
it was cash, stock or debt or some combination of those. Next, you
determine the valuations and shares outstanding of the buyer and seller
and project out an Income Statement for each one.
Finally, you combine the Income Statements, adding up line items such as
Revenue and Operating Expenses, and adjusting for Foregone Interest on
Cash and Interest Paid on Debt in the Combined Pre-Tax Income line; you
apply the buyer's Tax Rate to get the Combined Net Income, and then
divide by the new share count to determine the combined EPS."
What's the difference between a merger and an acquisition? - 🧠 ANSWER
✔✔There's always a buyer and a seller in any M&A deal - the difference
between "merger" and "acquisition" is more semantic than anything. In a
merger the companies are close to the same size, whereas in an
acquisition the buyer is significantly larger.
Why would a company want to acquire another company? - 🧠 ANSWER
✔✔Several possible reasons:
,1. The buyer wants to gain market share by buying a competitor.
2. The buyer needs to grow more quickly and sees an acquisition as a way
to do that.
3. The buyer believes the seller is undervalued.
4. The buyer wants to acquire the seller's customers so it can up-sell and
cross-sell to them.
5. The buyer thinks the seller has a critical technology, intellectual property
or some other "secret sauce" it can use to significantly enhance its
business.
6. The buyer believes it can achieve significant synergies and therefore
make the deal
accretive for its shareholders.
Why would an acquisition be dilutive? - 🧠 ANSWER ✔✔An acquisition is
dilutive if the additional amount of Net Income the seller contributes is not
enough to offset the buyer's foregone interest on cash, additional interest
paid on debt, and the effects of issuing additional shares.
COPYRIGHT©NINJANERD 2025/2026. YEAR PUBLISHED 2026. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE. PRIVACY
STATEMENT. ALL RIGHTS RESERVED
3
, Acquisition effects - such as amortization of intangibles - can also make an
acquisition dilutive.
Is there a rule of thumb for calculating whether an acquisition will be
accretive or dilutive? - 🧠 ANSWER ✔✔If the deal involves just cash and
debt, you can sum up the interest expense for debt and the foregone
interest on cash, then compare it against the seller's Pre-Tax Income.
And if it's an all-stock deal you can use a shortcut to assess whether it is
accretive (see question #5).
But if the deal involves cash, stock, and debt, there's no quick rule-of-
thumb you can use unless you're lightning fast with mental math.
A company with a higher P/E acquires one with a lower P/E - is this
accretive or dilutive? - 🧠 ANSWER ✔✔Trick question. You can't tell unless
you also know that it's an all-stock deal. If it's an all-cash or all-debt deal,
the P/E multiples of the buyer and seller don't matter because no stock is
being issued.
