A merger will be financially justified only if a target firm's value is greater to the acquiring firm than its market value as a separate entity.

Question

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A merger is justified only if the acquiring firm perceives that the value of the target firm is greater than its market value as a separate entity. This is because the acquiring firm aims to gain synergies and improve its overall financial position, which it believes is not possible to achieve alone. Therefore, a merger should result in increased shareholder value for both firms.

A Merger Will Be Financially Justified Only If a Target