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CMA Final · Strategic Performance Management and Business Valuation · Valuation in Mergers and Acquisitions

In valuing a target company for a merger, the acquirer's analyst identifies that the combined firm will save Rs 12 crore annually in overheads and gain better purchasing terms. Such benefits arising only because the two firms operate together are best described as:

These benefits are called synergy. Savings in overheads and better purchasing terms arise only from combining the two firms, so their value is the incremental gain of the merger, unlike goodwill, minority discount or liquidation value, which concern other valuation ideas.

  1. ASynergyCorrect
  2. BGoodwill written off
  3. CMinority discount
  4. DLiquidation value

Explanation

Cost savings and purchasing advantages that exist only after combination are operating synergies. Goodwill is an accounting residual, a minority discount relates to non-controlling stakes, and liquidation value assumes closure of the business.

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