A competent merger analysis calculates the maximum per share price that should be paid for an acquisition as:
A)the pre-merger market price plus the per share value of synergies.
B)the NPV of the incremental cash flows coming from the acquisition divided by the number of shares of the target's stock that are outstanding.
C)the targets terminal value.
D)the NPV of the target's terminal value divided by the number of share tendered.

Question

Quizplus · Accepted Answer

The maximum per share price that should be paid for an acquisition is determined by calculating the NPV of the incremental cash flows generated by the acquisition and then dividing that by the number of shares of the target's stock outstanding. This method takes into account the value that the acquisition will bring to the acquirer and ensures that the price paid does not exceed that value. The other options are not comprehensive enough to provide an accurate maximum per share price for the acquisition.

A Competent Merger Analysis Calculates the Maximum Per Share Price