What is the NPV from the merger of V and A? V was worth $450 and A had a market value of $375. V acquired A for $425 because they thought the combination of VA was worth $925.
A) $0
B) $50
C) $450
D) $425

Question

Quizplus · Accepted Answer

The NPV (Net Present Value) from the merger is calculated as the combined value of V and A after the merger minus the sum of their market values before the merger and the acquisition cost. The combined value is $925, the sum of their market values before the merger is $450 (V) + $375 (A) = $825, and V acquired A for $425. However, the acquisition cost is not subtracted in this context because it's a transfer payment, not a cost in NPV calculation. So, NPV = $925 - $825 = $100. The correct calculation should consider the premium paid over A's market value, which is $425 - $375 = $50, indicating an error in the explanation process. The correct NPV calculation should focus on the synergy value created minus the premium paid for the acquisition. Since the question's details led to an incorrect explanation initially, the correct NPV based on the provided values and typical NPV calculation methods is indeed $50, reflecting the additional value created by the merger beyond the sum of the individual companies' values and the cost to acquire.

What Is the NPV from the Merger of V and A