Which of the following best describes a merger with true synergies?
A)In a merger with true synergies, the pre-merger value exceeds the sum of the separate companies' pre-merger values and the dollar cost of the firms' capital.
B)In a merger with true synergies, the post-merger value exceeds the sum of the separate companies' pre-merger values
C)In a merger with true synergies, the post-merger value exceeds the sum of the separate companies' pre-merger values plus a risk adjusted cash flow relative to the risk of the combined firm.
D)In a merger with true synergies, the post-merger value is less than the sum of the separate companies' pre-merger values.

Question

Quizplus · Accepted Answer

In a merger with true synergies, the post-merger value will be greater than the sum of the separate companies' pre-merger values due to the benefits of combining the two companies. This is the definition of true synergies, where the whole is greater than the sum of its parts. Option A is not correct because the pre-merger value is not relevant in assessing whether a merger has true synergies or not. Option C may also be true, but it is not necessary for a merger to have risk-adjusted cash flows to be considered a true synergy. Option D is incorrect because the post-merger value must be greater than the pre-merger value for it to be considered a synergy.

Which of the Following Best Describes a Merger with True