M&A Modeling Practice Exam 2025 – The Comprehensive Guide to Mastering Mergers and Acquisitions!

An accretive deal is characterized by an increase in the acquiring company's earnings per share (EPS) following the transaction. In an all-stock transaction, the acquirer pays for the target by issuing new shares, and if the earnings generated by the combined entity exceed the earnings attributed to the new shares issued, the result is an increase in EPS for the acquirer.

In the context of this question, when the deal is accretive, it indicates that the target company contributes positively to the overall earnings of the acquirer, thereby enhancing shareholder value immediately after the merger. This is a critical aspect of evaluating potential acquisitions, as companies aim for accretive deals to demonstrate financial prudence and justify the acquisition to existing shareholders.

The other aspects mentioned in the incorrect options relate to scenarios that do not align with the definition of an accretive transaction. For example, a lower EPS for the acquirer or requiring a specific relationship between the acquirer’s and target's P/E ratios does not capture the core benefit of an accretive deal. Additionally, cash payments do not pertain to an all-stock transaction, which specifically entails payment through equity rather than cash.