The value of a target ﬁrm to the acquiring ﬁrm is equal to:
A)the value of the target ﬁrm as a separate entity plus the incremental value derived from the
Acquisition.
B)the purchase cost of the target ﬁrm.
C)the value of the merged ﬁrm minus the value of the target ﬁrm as a separate entity.
D)the purchase cost plus the incremental value derived from the acquisition.
E)the incremental value derived from the acquisition.

Question

Quizplus · Accepted Answer

The value of the target firm to the acquiring firm is not just the purchase cost, but also includes the value of the target firm as a separate entity (its assets, liabilities, revenue streams, etc.) and the incremental value that will be generated by the acquisition (such as synergies or access to new markets). Therefore, A is the best choice as it takes into account both the pre-acquisition value and the incremental value.

The Value of a Target ﬁRm to the Acquiring ﬁRm