Project Ashgrove — Accretion/Dilution Test
A 30-minute Accretion/Dilution Modeling Test case study with a complete model answer
Modeled After
BofA Securities
Buy-side discussion materials containing an analysis at various premiums and a two-axis EPS accretion by synergy sensitivity grid, with pro forma credit statistics and no standalone valuation range
Structure and exhibit set are modeled after BofA Securities. The companies, the financials and every figure in this case are entirely our own.
The Situation
Ashgrove Corporation (AGRV) makes industrial consumables — the abrasives, filtration media and fasteners other manufacturers buy by the pallet.
Ashgrove Corporation / Bexley Products, Inc.
- Sector
- Industrial consumables manufacturing — abrasives, filtration media and fasteners sold into industrial end markets
- Size
- Geography
- United States; both companies listed and domestically headquartered
- Ownership
- Situation
The Prompt
You are an analyst in Ashgrove Corporation's corporate development team. The board has asked for a view on acquiring Bexley Products, Inc.
Supporting Materials
What you are handed at the start of the case, in the format a real process would use.
What You Have to Produce
The deliverables, in the order the committee will read them. The exercise runs 30 minutes.
PART 1
Consideration & Funding — 90 cells
PART 2
Acquisition Debt Schedule — 66 cells
PART 3
Accretion & Dilution, three years by six structures — 174 cells
PART 4
Pro Forma Credit Statistics — 66 cells
PART 5
Breakeven & Sensitivity — 75 cells, attempt last
How to Approach It
The order a strong candidate works in, and why. This is the shape of the answer — the finished Excel model is in the solution set below.
- 01
Count the formulas, not the cells
- 02
Get the funding block right first
- 03
Enumerate the sources of dilution before charging them
- 04
Run leverage and coverage, not leverage alone
- 05
Solve the breakeven rather than searching for it
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
Accretion / (dilution) analysis
A comparison of the acquirer's pro forma earnings per share against what it would have earned standalone in the same year. It is not a valuation technique and says nothing about whether a price is right — a deal can be accretive and still destroy value. What it tests is whether the earnings bought are worth more than the earnings, interest and shares given up to get them.
The three sources of dilution
Every dilutive effect here traces to one of three things: shares issued as consideration enlarge the denominator, interest on new acquisition debt shrinks the numerator, and cash spent from the balance sheet stops earning interest, shrinking it further. An all-share deal carries only the first, a fully debt-funded deal only the second, a mix that draws cash before borrowing can carry all three. Naming which apply before computing is how you sanity-check the output.
Phased synergies
Cost synergies rarely arrive on day one, so they are recognized on a ramp — 25% of run rate in the first year, 50% in the second, the full amount in the third, with run rate set at 5.0% of the target's FY2026E sales. The phasing is why three years are worth building: earnings improve each year purely because more of the synergy lands. The omissions are deliberate too — no costs to achieve, no integration expense, no restructuring charge.
Floating-rate acquisition debt
Debt priced off a base rate that moves with the forward curve plus a fixed credit spread — here 3.5%, 4.0% and 4.5% across the three years against a 5.0% spread, so the all-in cost rises even as the balance amortizes. Two mechanics matter for the build: interest is charged on the beginning-of-period balance, which removes the circular reference, and amortization runs off original principal rather than the current balance, so the step-down is equal every year.
Consideration mix
The split between stock and cash and, where cash is used, between the balance sheet and new borrowing. Each currency carries a different after-tax cost: stock costs a share of the acquirer's own earnings, new debt costs its all-in rate less the tax shield, balance sheet cash costs the interest it was earning. Those three are not close to one another here, and the cheapest is capped at $450mm. Which is cheapest, and what happens when it runs out, is the analytical core of the exercise.
Pro forma credit statistics
The leverage and coverage the combined company carries the day after close — net debt to pro forma EBITDA, and pro forma EBITDA to pro forma interest expense. Boards limit both because they measure different things: leverage how much was borrowed, coverage whether cash flow services it at the rate actually paid. Where spreads are wide the two diverge, and a structure satisfying a leverage covenant can still fail on coverage.
Breakeven analysis
Solving the EPS bridge backwards for the input that makes pro forma exactly equal standalone. Two versions appear here: the Year-1 pre-tax synergy needed to hold EPS flat, where a negative answer means the structure works with no synergies at all, and the offer price at which the deal is EPS-neutral, which converts into a maximum premium and a maximum multiple. It is the most durable output in the workbook, because it survives the assumption you distrust most.
What Makes It Hard
The specific traps in this case — the places candidates lose the assessment without noticing.
Check Your Answer
Type the figures you produced and find out how many are right before you open the worked answer. You get a verdict and, where you are off, a pointer to the part of the build to re-check — never the number itself. Everything you type stays on this device.
How to type a figure. Digits, with an optional unit: 1,234.5, $1,234.5, 2.6x, 21.4%. For a negative use (20.0) or -20.0. Enter as many decimals as you carried — precision is never penalised.
What the Case Asked For
The arithmetic is only half of it. Tick off what you actually produced — this half is yours to score, because nothing can grade a written recommendation from a checkbox.
The Model Answer
The worked answer in full: Excel model, built the way a banker would actually build it. It is a reference, not a submission — a strong answer under the clock is far shorter.
What the Solution Covers
- —All-stock, all-cash and mixed consideration
- —Phased synergy recognition
- —Floating-rate acquisition debt with amortization
- —Pro forma credit statistics
- —Sensitivity table construction
- —Speed under a severe time budget
Memo
The written recommendation and how it was reached
Upgrade to Diamond
Sign up and upgrade to Diamond to unlock the Excel model and the audio walkthrough.
Get StartedThe Excel Model
The model is linked and tied out end to end — every schedule, every formula and every check, in the file itself.
Downloads are available to Diamond members
Excel Model and Memo (PDF) — yours to open, edit and rebuild
Walkthrough
A conversational walkthrough of how to approach the case under time pressure — where to start, what to cut, and how the recommendation gets defended.
Audio Walkthrough
How to approach Project Ashgrove — Accretion/Dilution Test
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
What is an accretion/dilution modeling test in an investment banking interview?
A timed Excel exercise: you are handed two sets of projected financials, a page of transaction assumptions and a blank template, then asked what an acquisition does to the acquirer's earnings per share under different ways of paying for it. You build the funding, schedule any acquisition debt, bridge combined pre-tax income to pro forma EPS and compare against standalone. It is a staple of assessment centers because the mechanics are unambiguous — there is a right answer.
How do you finish a 471-cell workbook in thirty minutes — and what if you cannot?
You treat it as 136 formulas rather than 471 cells, about thirteen seconds each, which is tight but real: author the first structure's consideration column, check it, fill it right, then copy the FY2026E bridge down for the two later years. Absolute versus relative referencing is what makes that work. And partial completion is expected here and graded as such — the build order on the template's cover gives the last three minutes to Breakeven & Sensitivity and says that the breakeven-price table and the grid are what to leave if the clock runs out. Carrying all six structures through the EPS bridge and the credit statistics answers the question; perfecting two structures and leaving four blank does not.
Why does an all-share deal dilute the acquirer at some prices and not others?
Because paying in stock means giving away a share of your own earnings in exchange for the target's. The comparison that governs is the acquirer's own P/E against the P/E implied by the offer: buying earnings more cheaply than the market prices your own adds to EPS, paying more for them than your own are worth subtracts from it. Every dollar of premium raises the P/E being paid, so there is a price at which the deal crosses over — which is exactly what the breakeven offer price locates.
Is a cash deal always more accretive than a stock deal?
No, and assuming so is the most common error in this kind of test. The rule of thumb compares the after-tax cost of debt against the earnings yield of the acquirer's stock, and it holds when base rates are low and the acquirer trades on a high multiple. Reverse either condition and it fails. Cash-funded structures also give up the interest the cash was earning, which stock-funded ones do not. Compute the after-tax cost of each currency on the assumptions given, then rank.
Why does the case exclude purchase accounting?
Because it does not fit in thirty minutes, and the exercise says so on the assumptions page rather than leaving you to wonder. A full treatment would allocate the purchase price, step up asset bases, create identifiable intangibles, run their amortization through the income statement and carry the deferred taxes. All of it reduces pro forma earnings, so every structure would look worse — which is why saying so at the end is the right instinct.
What separates a strong candidate from an adequate one here?
Both finish the arithmetic. The difference is whether you can explain the result: naming the three sources of dilution before building, noticing that one of the funding sources is capped at a fixed amount and asking what happens to the marginal dollar beyond it, computing the after-tax cost of each currency instead of assuming a ranking, checking both credit tests rather than the one that comes to hand first, and being able to say what the breakeven offer price implies as a multiple.
About This Accretion/Dilution Modeling Test Case Study
Accretion/Dilution Modeling Test case study for investment banking interviews. 30-minute format covering all-stock, all-cash and mixed consideration, phased synergy recognition, floating-rate acquisition debt with amortization. Includes the full prompt, a tied-out Excel model and an audio walkthrough.
This case study sits in Investment Banking, under Mergers & Acquisitions. Every case ships with the full prompt, the supporting materials, a complete model answer and an audio walkthrough of the judgment behind the recommendation.
30-Minute Format
The time limit a real assessment would give you
Excel Model
Included in the model answer
Audio Walkthrough
How to approach the case under time pressure
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