A potential merger that produces synergy: Select one: a. Should be rejected due to the projected negative cash flows. b. Creates value and therefore should be pursued. c. Should be rejected because the synergy will dilute the benefits of the merger. d. Reduces the anticipated net income from the target firm. e. Has a net present value of zero.

B

Explanation:

Synergy is defined as a believe that value and output when the operation of two companies are merged is always greater, compared to the sum of the value and output of the involved separate individual companies. It can be explained with the mathematics formula "1+1 >2".

As the aim of every business is to maximize profit, therefore a potential merger that produces synergy should be pursued as this brings increased value compared to the individual efforts of the component companies

b. Creates value and therefore should be pursued.

Explanation:

Synergy is a term and concept used in merger and acquisition, that the combined value and performance of two companies (to be involved in the merger) will be greater than the sum of the separate individual companies.

Shareholders will benefit if a company's post-merger share price increases due to the synergistic effect of the deal. Usually, merger and acquisition transactions result in a larger company, which has a higher bargaining power to get a lower cost of capital. Achieving a lower cost of capital as a result of a merger or acquisition is an example of Financial Synergy.

Synergies can be negative if a merger or acquisition is poorly executed. In some cases, forecasted cost savings actually turn into higher costs if the two businesses fail to integrate properly.