The initial offer price for the target firm is defined as
A) The minimum price
B) The present value of the minimum price plus some fraction of the present value of net synergy
C) The present value of net synergy plus the current market value of the target firm
D) The maximum price less the minimum price
E) The maximum price less the present value of net synergy

Question

Quizplus · Accepted Answer

The initial offer price for the target firm should be based on the present value of net synergy (the value that can be generated by combining the two firms) in addition to the minimum price that the target firm is willing to accept. Therefore, option B is the correct choice. Option A is incorrect because it only considers the minimum price, while option C is incorrect because it includes the current market value of the target firm which may not be relevant to the acquirer. Option D and E are incorrect because they do not take into account the value of net synergy.

The Initial Offer Price for the Target Firm Is Defined