Practice Problem – NPV of a Merger

Practice Question

Cases in Finance
Mergers and Acquisitions
NPV
True or False

The NPV of a merger can be calculated by subtracting the price paid for the target from the combined value of the acquirer and target.

Answer +
TRUE
Explanation +

The NPV of a merger reflects the value added by combining the acquirer and target. It's calculated as the total value of the merged entity minus the standalone value of the acquirer and the price paid for the target. A positive NPV suggests that the merger creates value beyond the cost of acquisition, often due to synergies such as cost savings, revenue enhancement, or strategic benefits.