Which one of the following best defines synergy given the following? VA = Value of Firm A VB = Value of Firm B VAB = Value of merged Firm AB A) (VA + VB) − VAB B) VAB − (VA + VB) C) Max[(VA + VB) − VAB, 0] D) Max[VAB − (VA + VB), 0] E) Max[VAB − VB, 0]

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Answer:

D) Max[VAB − (VA + VB), 0]

Explanation:

Synergy is a term in business or finance, typically utilized in relation to Mergers and Acquisitions, which describes the idea that the collective value and accomplishment of two companies will be bigger than the sum of the separate individual company.

Hence, the best formula which defines synergy given the listed options is Option D which is Max[VAB − (VA + VB), 0].

It can also be written as Greater of 0 or VAB - (VA + VB)