Explain the full set of adjustments that happen to pro forma net income in an acquisition, in the exact order they should appear in a well-organized model, and describe which adjustments are tax-affected and why.

The pro forma net income build should be structured as follows:

1. Start with Acquirer standalone net income (already after-tax).
2. Add Target standalone net income (already after-tax).
3. Add after-tax synergies: both cost and revenue synergies multiplied by (1 - tax rate) because they increase pre-tax income and are subject to tax. Cost synergies flow at 100% of realized savings; revenue synergies flow at incremental margin, so the pre-tax synergy number must already reflect margin.
4. Subtract after-tax incremental interest expense on new debt: interest expense x (1 - tax rate) because interest is tax-deductible. The (1 - t) factor means we deduct less than the full interest amount, reflecting the tax shield.
5. Subtract after-tax foregone interest income on cash used: foregone interest income x (1 - tax rate) because that interest income would have been taxable; losing it means losing both the income and the associated tax.
6. Subtract after-tax incremental depreciation and amortization from asset write-ups: incremental D&A x (1 - tax rate) because D&A is tax-deductible, reducing taxable income.

The order matters because synergies should be grossed up for tax before netting against costs. All adjustments that touch pre-tax income must be multiplied by (1 - t) to reflect their impact on net income, except for the starting net income figures which are already after-tax. A common error is to deduct the full pre-tax interest expense or to add synergies without tax-affecting them.

Follow-up pressure:

• Where does the amortization of financing fees fit into this build, and how is it treated for tax purposes?
• If the target has an NOL (net operating loss) carryforward, does that change how you tax-affect the target's net income in the pro forma?
• The acquirer has a different tax rate than the target. Which tax rate do you use for each adjustment, and why?