If the target firm and acquirer have initial values of $100 million and $150 million, respectively, and the combined firm is worth $400 million, then the synergy value is:
A)$50 million
B)$400 million
C)$150 million
D)$100 million

Question

Quizplus · Accepted Answer

The initial value of the target firm is not relevant in calculating the synergy value. The combined firm is worth $400 million and the acquirer's initial value is $150 million, which means that the initial value of the target firm was $250 million ($400 million - $150 million). Therefore, the synergy value is $150 million ($250 million - $100 million).

If the Target Firm and Acquirer Have Initial Values of $100