Which one of the following statements illustrates a synergistic effect of a merg

Question

Which one of the following statements illustrates a synergistic effect of a merger?

a. The revenue of the combined firm is equal to the revenue of the acquiring firm plus the revenue of the target firm.

b. The costs of the combined firm exceed the costs of the acquiring firm plus the costs of the target firm.

c. The tax liability of the combined firm is greater than the summation of the tax liabilities of each separate firm.

d. The capital requirements of the combined firm are less than the summation of the capital requirements of each separate firm.

e. The depreciation expense of the combined firm is equivalent to the depreciation expense of the acquiring firm plus the depreciation expense of the target firm.

Explanation / Answer

Which one of the following statements illustrates a synergistic effect of a merger ?

Answer:- Option d). The capital requirements of the combined firm are less than the summation of the capital requirements of each separate firm.

Explanation:- Rest other options (a, b, c, and e) does not illustrate a synergistic effect of a merger. Option d [ The capital requirements of the combined firm are less than the summation of the capital requirements of each separate firm] is very clearly illustrating a synergistic effect of a merger.

Conclusion:- The capital requirements of the combined firm are less than the summation of the capital requirements of each separate firm. [Option d]

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