In evaluating a target in a merger or acquisition,if the target has outstanding debt:

Question

Quizplus · Accepted Answer

When evaluating a target in a merger or acquisition, any outstanding debt must be subtracted from the estimated value of the target to determine the target's equity value. This is because the acquiring firm would be responsible for paying off the target's outstanding debt as part of the acquisition. Simply adding the debt to the estimated value of the target would result in an inflated equity value, which would not accurately represent the true value of the target. The presence of debt does not necessarily discourage an acquiring firm from pursuing a merger or acquisition, but rather, it is taken into consideration as part of the overall valuation process. The retiring of any outstanding debt may be a condition of the merger or acquisition, but it is not always necessary.

In Evaluating a Target in a Merger or Acquisition,if the Target