Buyer has $100 share price, 3M S/O, $20M net income, 40% tax rate. Target has $18 share price, 500,000 S/O, $5M net income, 40% tax rate. Buyer purchases target with 25% debt and 75% equity at $20/share. Debt has interest rate of 8%. There are $900,000 in pre-tax synergies. What is the $ value and % of accretion/dilution?

Purchase Price of Target
$20 share purchase price
x 500k shares outstanding
$10,000k purchase price

Interest Expense
$10,000k purchase price
x 25% financed by debt
$2,500k debt
x 8% interest rate
$400 pre-tax interest expense
x 60% 1- tax rate
$120 after-tax interest expense

# of Shares Issued
$10,000k purchase price
x 75% financed by debt
$7,500k equity value
÷ 100 share price of buyer
75k shares issued

Total # of Shares Outstanding
3,000k beg. shares outstanding
÷ 75k shares issued
3,075k total shares outstanding

Synergies
$900,000 pre-tax synergies
x 60% 1- tax rate
$540,000 after-tax synergies

Total Net Income and EPS
$20,000k net income of buyer
+ $5,000k net income of seller
– $120k interest expense
+ $540k after-tax synergies
$25,420k total net income
÷ 3,075k total shares
$8.27 EPS

Accretion / Dilution
$20,000K
÷ 3,000k beg shares
$6.67 EPS

$6.78 new EPS
– $6.67 old EPS
$0.11 accretion
÷ $6.67 old EPS
1.65% accretion