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  • Model 03-02A Effects On Leverage of A Cash Purchase

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    JN
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    This document contains 3 models showing the effects of different types of acquisitions on leverage. Model 1 shows a cash purchase which increases the combined firm's assets but does not change total debt, increasing the debt to equity ratio. Model 2 shows a purchase using debt financing, which increases total debt and the debt to equity ratio. Model 3 shows a stock for stock purchase which does not change total debt or assets, reducing the debt to equity ratio.

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    Excel template

    Original Title

    PoolingvsPurchaseLeverage

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    This document contains 3 models showing the effects of different types of acquisitions on leverage. Model 1 shows a cash purchase which increases the combined firm's assets but does not change total debt, increasing the debt to equity ratio. Model 2 shows a purchase using debt financing, which increases total debt and the debt to equity ratio. Model 3 shows a stock for stock purchase which does not change total debt or assets, reducing the debt to equity ratio.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xls, pdf, or txt
    10 views3 pages

    Model 03-02A Effects On Leverage of A Cash Purchase

    Uploaded by

    JN
    This document contains 3 models showing the effects of different types of acquisitions on leverage. Model 1 shows a cash purchase which increases the combined firm's assets but does not change total debt, increasing the debt to equity ratio. Model 2 shows a purchase using debt financing, which increases total debt and the debt to equity ratio. Model 3 shows a stock for stock purchase which does not change total debt or assets, reducing the debt to equity ratio.

    Copyright:

    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xls, pdf, or txt
    of 3

    Model 03-02A

    Effects on Leverage of a Cash Purchase


    Acquirer

    Target

    Adjustments
    Debit
    Credit

    Excess cash

    $25

    Other assets

    75

    20

    $100

    $20

    $110

    50

    10

    60

    Shareholders' equity

    50
    -

    10
    -

    10
    -

    50
    -

    Total Claims

    $100

    $20

    $25

    $25

    $110

    To be Allocated
    Total assets
    Total debt

    Debt/Equity ratio

    $25

    Combined
    Firm

    0.5

    $0
    95

    15
    -

    15
    -

    1.20

    M-9

    Model 03-02B
    Effects on Leverage of a Purchase with Debt
    Acquirer

    Target

    Excess cash

    $0

    Other assets

    75

    20

    $75

    $20

    50

    10

    Shareholders' equity

    50
    -

    10
    -

    Total Claims

    $100

    $20

    To be Allocated
    Total assets
    Total debt

    Debt/Equity ratio

    Adjustments
    Debit
    Credit

    Combined
    Firm
    $0

    1.0

    95
    15
    -

    15
    $110

    25

    85

    10
    -

    50
    -

    $25

    $25

    $135
    1.70

    M-10

    Model 03-02C
    Effects on Leverage of a Stock for Stock Purchase
    Acquirer

    Target

    Adjustments
    Debit
    Credit

    Combined
    Firm

    Excess cash

    $0

    Other assets

    100

    20

    $100

    $20

    $135

    50

    10

    60

    Shareholders' equity

    50
    -

    10
    -

    10
    -

    25
    -

    75
    -

    Total Claims

    $100

    $20

    $25

    $25

    $135

    To be Allocated
    Total assets
    Total debt

    Debt/Equity ratio

    $0

    1.0

    120
    15
    -

    15
    -

    0.80

    M-11

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