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Follow these steps in calculating the expected present value of an aro. The straight line method calculates an evenly distributed amortization or accretion schedule across the life of the bond spreading the premium or discount amount evenly over all periods.

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The rate of accretion is determined by dividing the discount by the number of years in the term.

How to calculate accretion. Accretion for an acquisition. To calculate the amount of accretion use the formula. The following question tests your understanding of accretion.

Divide the result by the original number of years to maturity. Include conservative estimates of net income taking into account prospective operational. In the bond world accretion refers to the capital gains earned on a bond purchased at a discount.

Accretion amount purchase basis x ytm accrual periods per year coupon interest the first step in the constant yield method is. To calculate the exact accretion we need to know company a s share count and eps. Assuming company a has 200 shares and projected eps of 3 00 the deal is quite accretive.

Determine the earnings per share eps for a company that is buying another company. Divide the pro forma net income by the pro forma shares of stock. Dancer purchases a 5 percent corporate bond with 10 years to maturity at 80.

Accretion is growth typically in earnings usually after an acquisition or other significant event. The result should be a pro forma stock shares outstanding estimate. Estimate the timing and amount of the cash flows associated with the retirement activities.

Estimate a pro forma net income for the combined entities. Determine the credit adjusted risk free rate. While the value of the.

In the bond world accretion refers to the capital gains earned on a bond purchased at a discount. What is accretion dilution analysis. Aside from variables that affect the pro forma net income due to anticipated synergies.

162 5 extra net income 200 shares 0 8125 extra eps 0 8125 3 00 27 accretive. In the case of zero coupon bonds the interest acquired is not compounding. Calculate the number of shares for the new company.

Recognize any period to period increase in the carrying amount of the aro liability as. For example a company with 100 000 000 in net income and 500 000 000 shares outstanding has an eps of 0 20. This number is dependent on whether the transaction is a merger or acquisition and whether the issuance of new stock will finance any part of the transaction.

To determine the annual accretion find the difference between the cost of the bond and par value. Divide the total net income for the company by the number of shares outstanding.