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The importance of corporate valuation in the M&A process

Acquiring Company pays $35 million for all of the outstanding stock in Target Company. The fair market value of Target Company’s tangible assets is $15.00 million and the fair market value of its intangible assets is $10 million. The fair market value of assumed liabilities is $5 million. What is the value of goodwill that must be shown on the balance sheet of the combined companies?

Corporate valuation is an important step in the M&A process. This often requires the estimation of the target’s (or bidder’s) cost of capital, which usually involves estimating the company’s beta. Describe in detail how you would estimate the beta for a publicly traded firm. Be careful to address the practical issues that arise in estimating beta and how you would surmount those issues.


Solution Summary

Discusses the importance of Corporate valuation in the M&A process.