Which of the following statements is most CORRECT?a. The goal of merger valuation is to value the target firm's total capital at the target firm's weighted average cost of capital because a firm is acquired from all of its investors--both shareholders and creditors. b. The basic rationale for any financial merger is synergy and, thus, the estimation of pro forma cash flows is the single most important part of the analysis. c. In most mergers, the benefits of synergy and the premium the acquirer pays over the market price are summed and then divided equally between the shareholders of the acquiring and target firms. d. The acquiring firm's required rate of return in most horizontal mergers will not be affected, because the two firms will have similar betas. e. The primary rationale for most operating mergers is synergy.

The correct answer is letter "E": The primary rationale for most operating mergers is synergy.

Explanation:

A merger is usually the fusion of two firms by mutual consent. Two firms partner in mergers to create an entirely new entity. Mergers happen in a variety of forms and for a variety of reasons. There are horizontal mergers (two equal competitors who look forward to reducing costs) and vertical mergers (a company merging with a supplier).

Mergers are based on synergy since the purpose of the collusion is nothing more than producing a combined greater effect by two companies working together.

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