Question

"Bell Company has a market value of $424,600 while AMC Corporation has a market value of $237,200. AMC is merging with Bell and expects the combined firm to have a market value of $715,400. If the current Bell shareholders obtain $454,000 of equity in the new firm, how much synergy was allocated to the AMC shareholders?"

Answer 1

The multiple choices are:

$0 $12,400 $18,600 $24,200 $30,800

The correct option is $24,200

Step-by-step explanation:

The approach to determining the synergy attributable to AMC shareholders is to calculate the total synergy of the two-combined entities and then deduct the synergy allocated to Bell Company

Total synergy=Value of the combined entity- sum of the values of the individual entity

value of combined entity is $715,400

sum of the individual entities' value=$424,600+$237,200=$661,800

Total synergy created=$715,400-$661,800=$53,600

Synergy allocated to Bell=value taken by Bell shareholders-previous value

value taken by Bell Shareholders is $454,000

previous value is $424,600

synergy allocate to Bell=$454,000-$424,600=$29,400

Remnant of synergy=$53,600-$29,400=$24,200