Consider the following equation:

Question

Consider the following equation: 
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The term T in this equation refers to:
A)the premerger,or standalone,value of the acquirer. 
B)the value of the synergies created by the merger. 
C)the premerger (standalone)value of the target. 
D)new shares to pay for the target.

Quizplus · Accepted Answer

The term T in this equation refers to the premerger (standalone) value of the target. This equation is used in a valuation model called the Excess Earnings Method, which calculates the value of a business by estimating the earnings it would generate if it were operating as a standalone business (premerger) and then adjusting for any synergies created by the merger. In this equation, the values before and after the underscore represent the premerger values of the target, while the values after "TB" represent the transaction-specific adjustments.

Consider the Following Equation