What is considered when determining accretion or dilution for all deals?

• A. Macroeconomic trends
• B. Legal considerations
• C. Cost of debt
• D. Consumer demands

Answer: (C)

Accretion or dilution in the context of mergers and acquisitions primarily refers to the impact that a transaction has on the earnings per share (EPS) of the acquiring company. When determining whether a deal will be accretive or dilutive, a key factor is the cost of debt used to finance the acquisition. If the cost of debt is lower than the return on investment generated by the acquisition, the deal is likely to be accretive, increasing the EPS. Conversely, if the cost of debt is higher than the return, it can lead to dilution, decreasing the EPS.

In this context, while macroeconomic trends, legal considerations, and consumer demands can play an important role in the overall assessment of a deal, they do not directly affect the calculation of accretion or dilution. Instead, the specific financial aspects, such as how the acquisition will be funded and the expected financial performance of the acquired entity, are critical in determining the effect on EPS. Therefore, understanding the cost of debt is essential to evaluate the financial viability of a deal and its implications on shareholder value.