ACCA Strategic Professional · Advanced Financial Management · Valuation for acquisitions and mergers
Which one of the following is an example of financial synergy, as opposed to operational synergy, in an acquisition?
Using the target's unused tax losses and extra debt capacity to reduce the combined cost of capital is financial synergy. The other choices come from cost savings or revenue enhancement in operations, which are operational synergies.
- ACombining two sales forces to reduce selling costs
- BEliminating duplicate head office functions
- CUsing the target's unused tax losses and debt capacity to lower the combined cost of capitalCorrect
- DCross-selling products through the other firm's distribution network
Explanation
Financial synergy arises from lower cost of capital, greater debt capacity or use of tax losses. The other options reduce costs or raise revenues through operations, so they are operational synergies.
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