In this question they have added the synergy benefits to the market values of individual company to find the total value. In many questions, we add it with the earnings to find the combined company value. What is differently mentioned in this question that we add it to value of the company and when are we supposed to add it with earnings? What are the different wordings to look out for to understand?
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Sigra Co December 2012
2y ago#1The synergy benefits primarily occur because of the extra earnings. Whether they are valued separately and then added on or whether they are added to the earnings and then the total company valued would end up with the same result, but which we do depends on the wording of the question and the information given in the questions.
Benefits can also occur due to a change in the risk profile, in which case we need to take the total new earnings and then discount at the appropriate cost of capital for the new level of risk.
Thank you!
2y ago#3You are welcome.
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