- CFA Exams
- CFA Level I Exam
- Study Session 8. Corporate Finance (2)
- Reading 23. Mergers and Acquisitions
- Subject 8. Bid evaluation
CFA Practice Question
The maximum price that the acquirer should pay in a merger transaction is:
B. Synergies + VT.
C. VA + VT + S - C.
A. The post-merger value of the target company.
B. Synergies + VT.
C. VA + VT + S - C.
Correct Answer: B
User Contributed Comments 2
User | Comment |
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NIKKIZ | Isn't B technically equivalent to A? I understand that the value of the target company + synergies should be equal to the value of the target company post-merger. Undeniably, the value of the company post-merger is uncertain - same as intrinsic value, but then again, the value of the synergies can only be estimated. |
DevanCFA | My thinking was that answer A seems to only reference the post-merger value of the target and not the post-merger value of the acquirer, while B focuses pre-merger value of the target and the synergy (extra value added) across both companies. |