Providing motives for mergers

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1. Several factors have been proposed as providing motives for mergers, including (1) synergy, (2) availability of excess cash, (3) ability to purchase assets at less than replacement cost, (4) diversification, and (5) managers personal incentives.

a. Which of these motives are financially justifiable? Which are not?

b. Which of these motives apply to the proposed acquisition?

2. A major concern in any DCF valuation is the accuracy of both the terminal (long-term) growth rate and discount rate estimates. How sensitive is the acquisition value to these estimates?

Reference no: EM131101061

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