What is the cost of cash in an M&A transaction?

The cost of cash is the opportunity cost of the cash, which is the after-tax interest rate that could have been earned if the cash was left in the bank or invested into marketable securities (also known as cash equivalents). Marketable securities are low risk and highly liquid, and include:

  • Treasury bills or notes (national government debt)
  • Commercial paper
  • Certificates of deposit
  • Money market funds
  • Cash management pools