Question

American Alliance Corp., has recently acquired one of its competitors in a transaction deemed to produce a net present value (NPV) of about $1.2 billion. This NPV can also be referred to as:

Question 7 options:

1)	The consolidation effect.

2)	The diversification value.

3)	The agency cost.

4)

Synergy.

Answer 1

Option 4) Synergy

Synergy means value of combined companies is greater than the sum of value of individual company sepertely.

The synergy word mainly used in the mergers and acquisitions.

Synergy may also be negative.it come when combined value of companies is less than sum of value of individual company.

Synergy is reflected on balance sheet through its goodwill account.

Synergy may not have monetery value but it increases company future growth like increasing sales or reducing cost.