Kelly Tubes is considering a merger with Reilly Tires. Reilly's market-determined value is $3.75 million, and Kelly's market value as a stand-alone company is $4.50 million. Both firms are all equity-financed. Kelly acquires Reilly for $4.25 million because it believes the combined firm value will increase to $9.25 million. What will the synergy from this merger be?
A) $0.50 million
B) $1.00 million
C) $4.75 million
D) $5.00 million

Question

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The Answer of Kelly Tubes is considering a merger with Reilly Tires. Reilly's market-determined value is $3.75 million, and Kelly's market value as a stand-alone company is $4.50 million. Both firms are all equity-financed. Kelly acquires Reilly for $4.25 million because it believes the combined firm value will increase to $9.25 million. What will the synergy from this merger be?
A) $0.50 million
B) $1.00 million
C) $4.75 million
D) $5.00 million

Kelly Tubes Is Considering a Merger with Reilly Tires