In an acquisition, foregone interest on cash refers to what?

• A. The buyer loses the interest it would have earned if it had held cash.
• B. The seller pays interest.
• C. The buyer gains interest income.
• D. There is no effect on cash.

Answer: (D)

Foregone interest on cash is about the opportunity cost of using cash to fund an acquisition. If the buyer pays with cash, that money could have been invested to earn interest, so the buyer forgoes that potential return. In other words, the buyer loses the interest it would have earned had it held onto the cash. The other options miss this idea: it isn’t about the seller paying interest, it isn’t about the buyer gaining interest, and paying cash does affect the cash balance.