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Becton Company has a market value of $607,000 while ACV Corporation has a market value of...

Becton Company has a market value of $607,000 while ACV Corporation has a market value of $315,000. ACV is merging with Becton and expects the combined firm to have a market value of $1,170,000. If the current Becton shareholders obtain $705,000 of equity in the new firm, how much synergy was allocated to the ACV shareholders? $0 $196,000 $178,000 $245,000 $150,000

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Answer #1

E.$150,000.

total value of both firms before merger = 607,000 + 315,000 =>922,000.

synergy = value of merged firm - total value of both firms before merger

=>1,170,000 - 922,000

=>248,000.

synergy allocated to Becton shareholders = 705,000 new value - 607,000 old value

=>98,000.

so balance of synergy is allocated to ACV shareholders

=>248,000-98,000

=>$150,000.

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