Asked by Julia Guerrero on Jun 15, 2024
Verified
When the net income of the combined companies after a merger exceeds the sum of the net incomes prior to the merger, ____ is said to exist.
A) goodwill
B) synergy
C) leverage
D) greenmail
Synergy
A situation in which two companies operating together under one ownership perform better than the sum of their separate performances. A popular reason claimed for mergers.
Net Income
The financial profit a company has after subtracting all its expenses from its total revenue, indicating its profitability over a specified period.
Goodwill
An intangible asset representing the value of a company's brand name, solid customer base, good customer relations, good employee relations, and any patents or proprietary technology.
- Acquire knowledge about the concept of synergy in the framework of mergers and acquisitions and its effect on the overall value of the entities combined.
Verified Answer
DE
Destiny EsperJun 18, 2024
Final Answer :
B
Explanation :
Synergy is the term used to describe the increased efficiency and profitability that results from a merger or acquisition. When the combined net income exceeds the sum of the net incomes prior to the merger, it is a clear indication that synergy is present. Goodwill refers to the intangible assets that are acquired in a merger, leverage refers to the use of debt to finance a merger, and greenmail refers to a practice where a company buys back its own stock from an unfriendly investor at a premium price in order to avoid a takeover.
Learning Objectives
- Acquire knowledge about the concept of synergy in the framework of mergers and acquisitions and its effect on the overall value of the entities combined.