Which one of these defines the maximum price that a bidder should pay for a target firm?
A)An amount equal to the premium created by a merger of the bidder and target firms
B)Target firm's market value less the value of its long-term debt
C)Target firm's total market value as a stand-alone entity
D)Summation of the target firm's market value plus the merger premium minus any long-term debt
E)Summation of the target firm's market value plus the value of the synergy created by the merger

Question

Quizplus · Accepted Answer

The maximum price that a bidder should pay for a target firm is the summation of the target firm's market value plus the value of the synergy created by the merger. This accounts for the intrinsic value of the target company and the additional value generated from combining the two companies, which is the synergy.

Which One of These Defines the Maximum Price That a Bidder