A Potential Merger That Has Synergy

question 52

Multiple Choice

A potential merger that has synergy:

• A) Should be rejected due to the projected negative cash flows.
• B) Should be rejected because synergy destroys firm value.
• C) Has a net present value of zero and thus returns the minimal required rate of return.
• D) Creates value and therefore should be pursued.
• E) Reduces the anticipated net income of the acquiring firm.

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Definitions:

Southern Hemisphere

The half of Earth that lies south of the equator, known for having opposite seasons to the Northern Hemisphere.

World Bank

An international financial institution that provides loans and grants to the governments of poorer countries for the purpose of pursuing capital projects.

Upper Middle-Income

A classification of economies with gross national income per capita between the limits set by the World Bank or other defining bodies, indicating a relatively higher but not the highest income level.

Low-Income

Refers to individuals or families whose earning is below a certain threshold defined by national statistics, often leading to reduced access to goods and services.