Question

A bidding firm, A, is worth $27,000 as a stand-alone entity. A target firm, B, is worth $12,000 as a stand-alone entity, but $18,000 if it is acquired and integrated with Firm A. Several other firms are interested in acquiring Firm B, and Firm B is also worth $18,000 if it is acquired by these other firms. If A acquired B, would this acquisition create value

Answer 1

Answer and Explanation:

The computation is shown below:

In the case when A purchased B, so the value would be created for

= $18,000 - $12,000

= $6,000

This represents that if a Firm B purchased By firm A that values at $18,000 i.e. $6,000 more than the stand alone to firm B

Hence, the same is to be considered