On the Models to Evaluate a Merger/Acquisition Project

Authors

  • Chengho Hsieh Department of Economics and Finance College of Business Louisiana State University in Shreveport
  • Yannan Shen Department of Accounting and Business Law College of Business Louisiana State University in Shreveport

Keywords:

mergers, evaluation

Abstract

We compare and contrast the existing merger/acquisition evaluation models and based on the results, propose a model that is more complete. The model emphasizes on the need to value not only the target firm, but also the acquiring firm such that 1) the increase in debt capacity for each firm due to the coinsurance benefit that stems from the diversification effect by pooling two firms together can be considered and 2) the synergy gains accrued to each firm can be valued by the firm’s own discount rate. The model provides methods to account for the effect of the increased debt capacity on the valuations.

Downloads

Published

2022-07-16

How to Cite

Hsieh, Chengho, and Yannan Shen. 2022. “On the Models to Evaluate a Merger/Acquisition Project”. Journal of Finance Issues 20 (1):16-26. https://jfi.aof-mbaa.org/index.php/jfi/article/view/2617.

Issue

Section

Original Article