Which one of the following statements is correct concerning acquisition considerations?
A) The value of a target ﬁrm should be calculated ignoring the market valuation.
B) The acquisition analysis should focus on the existing cash ﬂows of the target ﬁrm.
C) The acquiring ﬁrm's discount rate should be used in the analysis of the merger NPV.
D) Transaction costs and related expenses must be included in the acquisition analysis.
E) The effects of synergy should be ignored in the acquisition analysis.

Question

Quizplus · Accepted Answer

Transaction costs and related expenses, such as legal fees, advisory fees, and financing costs, are a significant consideration in an acquisition analysis. These costs can add up quickly and can significantly impact the overall value of the merger, thus must be included in the analysis. Ignoring these costs can lead to an overly optimistic view of the potential benefits of the acquisition. Therefore, option D is the correct choice.

Which One of the Following Statements Is Correct Concerning Acquisition