The synergy of an acquisition between Firm A and Firm B can be determined by:
A) subtracting the change in cost from the change in revenue.
B) subtracting the change in taxes from the change in revenue.
C) subtracting the change in capital requirements from the change in revenues.
D) discounting the change in the cash flows of the combined firm by the risk adjusted discount rate.
E) discounting the change in the revenues of the combined firm by the risk adjusted discount rate.

Question

Quizplus · Accepted Answer

Synergy from an acquisition can be determined by discounting the change in the cash flows of the combined firm by the risk-adjusted discount rate. This approach captures the net effect of the acquisition on cash flows, considering both the benefits and costs, and adjusts for the risk associated with those future cash flows.

The Synergy of an Acquisition Between Firm a and Firm