Series 79 practice questioneasyPro Forma Financial Statements
In M&A pro forma analysis, synergies typically refer to:
- AThe premium paid above the target's unaffected stock price
- BThe discount rate applied to the combined entity's cash flows
- CCost savings and/or revenue enhancements expected from combining two companies✓ Correct answer
- DTax benefits from the transaction structure
Explanation
Why C — Cost savings and/or revenue enhancements expected from combining two companies
Synergies are the financial benefits that arise from combining two companies that would not be achievable by either company operating independently. Cost synergies include savings from eliminating duplicate functions, consolidating facilities, and achieving purchasing economies of scale. Revenue synergies include cross-selling opportunities, expanded market access, and enhanced product offerings. Cost synergies are generally more predictable and are given greater credibility in deal analysis than revenue synergies.
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