A potential merger that produces synergy:
A) should be rejected due to the projected negative cash flows.
B) should be rejected because the synergy will dilute the benefits of the merger.
C) has a net present value of zero.
D) creates value and therefore should be pursued.
E) reduces the anticipated net income from the target firm.

Question

Quizplus · Accepted Answer

A potential merger that produces synergy creates value and therefore should be pursued. Synergy occurs when the value of the combined firm is greater than the sum of the individual firms. This can result in cost savings, revenue enhancement, or other benefits that increase the value of the firm. As such, a merger that produces synergy is typically seen as a positive opportunity for both companies involved.

A Potential Merger That Produces Synergy