Which of the following statements is most CORRECT? a. The goal of merger valuati

Question

Which of the following statements is most CORRECT?

a. The goal of merger valuation is to value the target firm's total capital at the target firm's weighted average cost of capital because a firm is acquired from all of its investors--both shareholders and creditors. b. The basic rationale for any financial merger is synergy and, thus, the estimation of pro forma cash flows is the single most important part of the analysis. c. In most mergers, the benefits of synergy and the premium the acquirer pays over the market price are summed and then divided equally between the shareholders of the acquiring and target firms. d. The acquiring firm's required rate of return in most horizontal mergers will not be affected, because the two firms will have similar betas. e. The primary rationale for most operating mergers is synergy.

Explanation / Answer

The most correct statement is "e" - the primary rationale for most operating mergers is synergy.

The 2 companies and the resulting merged entity can benefit from increased productivity or better utlilization of resources as a result of the merger, thus creating synergy. In fact, synergy in operations is the single most important factor to be considered in mergers.

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