Question

Dillard Corporation has market value of $45,000 while Footstar Corporation has a market value of $67,000....

Dillard Corporation has market value of $45,000 while Footstar Corporation has a market value of $67,000. Footstar is merging with Dillard and expects the combined firm to have a market value of $148,000. If the current Dillard shareholders obtain $68,000 of equity in the new firm, how much synergy was allocated to the Footstar shareholders?

$13,000

$14,000

$15,000

$16,000

$17,000
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Answer #1

Benefit of the merger = Combined market value of both firms - market value of Dillard corporation - market value of Footstar Corporation

= $148,000 - $45,000 - $67,000

= $ 36000

Combined market value of both firms = $ 148000

Dillard corporation shareholders's share in equity of new firm = $68,000

Footstar Corporation shareholders's share in equity of new firm = 148000 - 68000

= $ 80,000

Before merger, market value of Footstar Corporation = $ 67,000

Total synergy benefit to shareholders of Footstar Corporation = 80,000 - 67000

= $ 13,000

Correct answer is $ 13000.

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