Which one of the following best defines synergy given the following? VA = Value of Firm A
VB = Value of Firm B
VAB = Value of merged Firm AB
A) (VA + VB) − VAB
B) VAB − (VA + VB)
C) Max[(VA + VB) − VAB, 0]
D) Max[VAB − (VA + VB, 0]
E) Max[VAB − VB, 0]

Question

Quizplus · Accepted Answer

Synergy is the additional value created by the merger of two firms. It can be calculated by subtracting the sum of the values of the individual firms from the value of the merged firm. Therefore, the correct formula is VAB - (VA + VB). The max function is not necessary since synergy can be negative. Choice D matches this formula.

Which One of the Following Best Defines Synergy Given the Following