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

Question

Quizplus · Accepted Answer

The value of the target firm to the acquiring firm would include the value of the target firm as a separate entity, as well as any incremental value that is expected to be derived from the acquisition. Therefore, option A is the best choice as it includes both of these components in its calculation. Option B is incorrect because it only considers the purchase cost, and option C is incorrect because it subtracts the standalone value of the target firm, rather than adding it. Option D is similar to option A but adds only the purchase cost, whereas option A considers the standalone value as well. Option E is too limited as it only considers the incremental value derived from the acquisition.

The Value of a Target Firm to the Acquiring Firm