What effect does foregone interest on cash have in an acquisition?

In the context of an acquisition, the foregone interest on cash refers to the opportunity cost associated with using cash for the acquisition rather than investing that cash elsewhere to earn interest. When a company utilizes cash in an acquisition, it does not earn interest that it otherwise would have if the cash remained invested. This lost potential income is considered an expense related to the cash outflow.

The foregone interest decreases pre-tax income because it represents a cost of capital. By using that cash for the acquisition, the company has effectively sacrificed income it could have generated, which needs to be reflected in the income statement. As a result, the overall impact on pre-tax income is negative due to this lost revenue stream.

While many other factors can influence a company's net income and earnings, the direct effect of lost interest on cash during an acquisition underscores the opportunity cost associated with such financial decisions. Therefore, claiming that foregone interest decreases pre-tax income accurately captures the financial implications of the cash outflow in an acquisition scenario.