In a related acquisition, if there is one target firm and ten bidding firms, and the value of each of the bidding firms as a stand-alone entity is $50,000 and the value of the target firm as a stand-alone entity is $30,000, the market value of the combined entity will be
A) $0.00.
B) less than $80,000.
C) $80,000.
D) more than $80,000.

Question

Quizplus · Accepted Answer

The market value of the combined entity will be more than $80,000 because the bidding firms are willing to pay more than the stand-alone value of their firm to acquire the target firm. The bidding process will drive up the value of the target firm, resulting in a value greater than the sum of the stand-alone values of the firms.

In a Related Acquisition, If There Is One Target Firm