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  1. 016A merger promises Rs 100 crore of pre-tax cost synergies at full run-rate: half in year 1 and all of it from year 2. Achieving them costs Rs 150 crore once, in year 1. Tax is 25% and the market capitalises after-tax earnings at 8x. Roughly what are the synergies worth today?Deal mathsHardNomuraNew York · 2026

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    Roughly what are the synergies worth?

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    About Rs 450 crore. At full run-rate the synergies add Rs 75 crore of after-tax earnings, which the market capitalises at 8x: Rs 600 crore. Two things the headline ignores come off. Year 1 delivers only half, a shortfall of Rs 37.5 crore after tax, and the one-off cost of Rs 150 crore is Rs 112.5 crore after its tax saving.

    Why can you not just multiply Rs 100 crore by 8?

    A shop owner expects a new supplier to cut her costs by Rs 1 lakh a year. Before celebrating, she has to pay tax on the extra profit, wait for the new contract to start, and pay the one-off cost of switching. A synergy is worth the after-tax earnings it adds, capitalised, less everything it costs to achieve and every rupee that arrives late. The 8x multiple applies to after-tax earnings, so the pre-tax Rs 100 crore first becomes Rs 75 crore at 25% tax, and 75 x 8 is Rs 600 crore.

    From the headline to what the synergies are worth, Rs crorenot this:pre-tax saving,after-tax multiple800Pre-tax x 8the headline600After tax x 875 a year x 8-37.5Year-1 shortfall50 x (1 - 25%)-112.5Cost to achieve150 x (1 - 25%)450Worth todayroughly450 = (800 - 50 - 150) x (1 - 25%)
    The pre-tax headline of Rs 800 crore overstates the synergies: after tax the run-rate is worth Rs 600 crore, and taking off the after-tax year-1 shortfall of Rs 37.5 crore and integration cost of Rs 112.5 crore leaves about Rs 450 crore.

    What comes off the Rs 600 crore?

    Two things. Phasing: the market value assumes the full run-rate, but year 1 delivers only half, so Rs 50 crore of pre-tax savings, Rs 37.5 crore after tax, never arrive. Cost to achieve: Rs 150 crore of severance, systems work and site closures, assumed tax deductible, so it costs Rs 112.5 crore after tax. Net of phasing and the cost to achieve, the synergies are worth about Rs 450 crore, a quarter less than the after-tax figure and 44% less than the pre-tax headline.

    The relationship
    V=100×0.75×8⏟600−50×0.75⏟37.5−150×0.75⏟112.5=450V = \underbrace{100 \times 0.75 \times 8}_{600} - \underbrace{50 \times 0.75}_{37.5} - \underbrace{150 \times 0.75}_{112.5} = 450
    100 x 0.75 x 8run-rate synergies after 25% tax, capitalised at 8x
    50 x 0.75the half of year 1's savings that does not arrive, after tax
    150 x 0.75the one-off cost to achieve, after its tax saving
    What it says in wordsCapitalise the after-tax run-rate, then subtract the after-tax value of the savings that arrive late and the cost of getting them.

    What does this rough answer leave out?

    Three refinements, each worth naming. The year-1 items fall a year from now, so discounting them would trim the deductions slightly. The 8x assumes the market gives synergies the same multiple as the core earnings, while in practice cost synergiesSavings from combining two businesses, such as closing duplicate offices or merging purchasing. earn more credit than revenue synergies and both are discounted for execution risk. The deductibility of integration costs is an assumption to confirm for the jurisdiction. The answer to give is the method and Rs 450 crore, then one line on which assumption you would test first.

    The number matters because it caps what a buyer can sensibly pay away. A premium above roughly Rs 450 crore hands the target's shareholders more than the whole value the deal creates, before any risk that the savings slip.

    Where candidates lose it

    The common slip is Rs 800 crore: a pre-tax saving multiplied by a multiple meant for after-tax earnings. Interviewers hear it constantly, because announcements usually quote synergies before tax.

    The second slip is stopping at Rs 600 crore. The question gave you a phasing schedule and a cost to achieve for a reason; both come off, and the cost comes off after tax.

    What the interviewer asks next

    • If the buyer pays a Rs 500 crore premium for the target, is the deal worth doing on these synergies alone?
    • How would you value Rs 100 crore of revenue synergies at a 20% EBITDA margin?
    • Why do markets often give cost synergies more credit than revenue synergies?

    Asked at Nomura, Investment Banking, New York, 2026 (Wall Street Oasis): Asked about what synergies were in a merger and in-depth questions about how my experiences

  2. 032An acquirer earns Rs 300 crore on 100 crore shares trading at Rs 45, a P/E of 15. It buys a target earning Rs 60 crore for Rs 1,200 crore, a P/E of 20, paying entirely in new shares. Is the deal accretive or dilutive, and by how much?Deal mathsCoreMizuhoSan Francisco · 2026

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    Without dividing anything yet: accretive or dilutive?

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    Dilutive, by about 5.3%. At Rs 45 a share, Rs 1,200 crore needs 26.7 crore new shares, taking the count to 126.7 crore. Earnings rise to Rs 360 crore, so EPS falls from Rs 3.00 to about Rs 2.84. The shortcut: in an all stock deal, buying at a higher P/E than your own always dilutes, because each rupee of earnings bought costs more than each rupee handed over. It takes Rs 20 crore of after-tax synergies to break even.

    What is the shortcut that answers it in ten seconds?

    Picture swapping a shop for a share in a friend's shop. If your shop is priced at 15 times its yearly profit and your friend's at 20 times, every rupee of your profit you hand over buys only three quarters of a rupee of theirs. In an all stock deal the acquirer gives up its own earnings yield and receives the target's, so a target on a higher P/E means dilution. Here the acquirer's earnings yieldEarnings divided by price, the inverse of the P/E. A P/E of 15 is an earnings yield of 6.7%. is 1 over 15, 6.7%, and the target's is 1 over 20, 5.0%.

    Shares grow faster than earnings, so EPS fallsAcquirer alone300Earnings, Rs cr100.0Shares, croreEPS = Rs 3.00After the all stock deal+60 target360Earnings, Rs cr+26.7 new126.7Shares, croreEPS = Rs 2.84 (-5.3%)What the stock costs: 1 / P/E of 15 = 6.7%What the target earns on its price: 60 / 1,200 = 5.0%Pay 6.7% for 5.0%: dilutive
    Earnings rise 20%, from Rs 300 crore to Rs 360 crore, but the share count rises 26.7%, from 100 crore to 126.7 crore, so EPS falls from Rs 3.00 to Rs 2.84: the acquirer pays 6.7% for earnings that yield 5.0%.

    How do the full numbers work?

    New shares: Rs 1,200 crore divided by Rs 45 is 26.7 crore, so the count rises from 100 to 126.7 crore. Earnings rise from Rs 300 crore to Rs 360 crore. When the share count grows faster than earnings, EPS falls: Rs 360 crore over 126.7 crore shares is Rs 2.84, down 5.3% from Rs 3.00.

    Rs crore unless statedAcquirer aloneAfter the deal
    Earnings300360
    Shares, crore100.0126.7
    EPS, Rs3.002.84
    Change in EPS-5.3%
    Issuing 26.7 crore shares at Rs 45 to pay Rs 1,200 crore lifts earnings by 20% but the share count by 26.7%, so EPS falls 5.3% to Rs 2.84.
    The relationship
    EPS=300+60100+1,200/45=360126.7≈2.84\text{EPS} = \frac{300 + 60}{100 + 1{,}200/45} = \frac{360}{126.7} \approx 2.84
    300 + 60the two companies' earnings added together, Rs crore
    1,200/45new shares issued at the acquirer's price, crore
    What it says in wordsCombined earnings divided by the enlarged share count.

    What would make the deal break even?

    Turn it round. The enlarged share count needs Rs 3.00 of earnings per share, so Rs 3.00 times 126.7 crore, which is Rs 380 crore. The deal needs Rs 20 crore a year of after-tax synergies, a third of the target's own earnings, before EPS is back where it started. Saying that number tells the interviewer how big the problem is, which matters more than the sign. Close with the limit: one year of EPS is not value, and a dilutive deal can still be worth doing if the target grows much faster than the acquirer.

    Where candidates lose it

    The usual loss is seeing Rs 60 crore of new earnings and calling the deal accretive without counting the new shares. Earnings rise 20% but the share count rises 26.7%, and only the comparison of the two decides the sign.

    The second is reaching for the wrong P/E. The cost of stock is the acquirer's own earnings yield at its own price of Rs 45, not the deal multiple or the target's P/E.

    What the interviewer asks next

    • The acquirer's shares rise to Rs 60 before closing. Is the deal still dilutive?
    • What if half the price is paid with debt at 9% before a 25% tax rate?
    • At what price for the target is the all stock deal exactly neutral?

    Asked at Mizuho, Investment Banking, San Francisco, 2026 (Wall Street Oasis): DCF walkthrough with follow-ups then a merger model accretion/dilution question

  3. 079A company has EBITDA of Rs 100 crore and can borrow at 10%. Lenders require interest cover of at least 2.5x and leverage of no more than 5.0x EBITDA. How much can it borrow, and which test binds?Deal mathsCoreWells Fargo SecuritiesNew York · 2025

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    Before you calculate: how much debt can the company raise?

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    Rs 400 crore, and the coverage test binds. Leverage of 5.0x allows Rs 500 crore. Coverage of 2.5x caps interest at 100 divided by 2.5, which is Rs 40 crore, and at 10% that interest supports Rs 400 crore of debt. The borrower must pass both tests, so the lower number is the ceiling. Below an 8% rate, leverage would bind instead.

    Why are there two answers, and why take the smaller?

    A bank deciding your home loan asks two things: is the loan too large against your salary, and can you afford the monthly payment? You can pass one and fail the other. Lenders to a company ask the same pair. Leverage limits the size of the debt; coverage limits the cost of carrying it, and the borrower must clear both, so the binding test is whichever gives less. Compute both every time, then name the one that bites.

    Leverage is one step: 5.0 times EBITDA of 100 is Rs 500 crore. Coverage works backwards from the payment. Interest coverEBITDA divided by interest expense: how many times over the operating profit pays the interest bill. of at least 2.5 means interest can be at most 100 divided by 2.5, which is Rs 40 crore. At a 10% rate, Rs 40 crore of interest corresponds to Rs 400 crore of debt.

    Two tests, one ceiling: the lower number is what you can borrowLeverage test: debt at most 5.0x5.0 x EBITDA 100= Rs 500 crore100 unusable500Coverage test: EBITDA / interest at least 2.5xMax interest 100 / 2.5 = 4040 / 10% = Rs 400 crore400binding: Rs 400 croreDebt allowed, Rs croreThe tests cross where 100 / (2.5 x 500) = 8%. Above an 8% rate, coverage binds.
    The leverage test allows Rs 500 crore but the coverage test, with interest capped at Rs 40 crore at a 10% rate, allows only Rs 400 crore, so the company can borrow Rs 400 crore and the extra 100 the leverage test permits is unusable.

    When would the answer flip to the leverage test?

    The coverage ceiling moves with the rate; the leverage ceiling does not. Set the two equal: interest of 40 on 500 of debt is an 8% rate. Below 8%, leverage binds; above it, coverage binds, which is why debt capacity shrinks when rates rise even if earnings do not move. At 7%, coverage would allow about Rs 571 crore, so the 500 leverage cap becomes the limit.

    The relationship
    Dmax⁡=min⁡(L×E,  E/Cr)=min⁡(500,  400)=400D_{\max} = \min\Big(L \times E,\; \frac{E / C}{r}\Big) = \min(500,\; 400) = 400
    EEBITDA, Rs 100 crore
    Lmaximum leverage, 5.0x
    Cminimum interest cover, 2.5x
    rinterest rate, 10%
    What it says in wordsDebt capacity is the smaller of the size limit and the debt the maximum affordable interest bill can carry.

    Say the limitation too. Real covenants often test cover on EBITDA less capex, or on a fixed charge basis that includes leases, and lenders size a deal with headroom below both ceilings rather than at them. The two-test logic stays the same.

    Where candidates lose it

    Most candidates multiply 5.0 by 100, say Rs 500 crore and stop, because leverage is the covenant they have read about. The interviewer has deliberately set the rate high enough that coverage bites first.

    The other loss is treating the two tests as alternatives to pick from. They are both conditions. Say both numbers, then say which binds and the rate at which it would switch.

    What the interviewer asks next

    • What interest rate makes the two tests give the same answer?
    • If EBITDA falls 20%, which ceiling falls further?
    • How would a cash sweep or amortisation change the coverage picture in later years?

    Asked at Wells Fargo Securities, Investment Banking, New York, 2025 (Wall Street Oasis): Simple 400 guide questions, walk through DCF, how much leverage is too much leverage, walk through 3 statemets.