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Question 71

A retail organization is considering acquiring a composite textile company. The retailer's due diligence team determined the value of the textile company to be $50 million. The financial experts forecasted net present value of future cash flows to be $60 million. Experts at the textile company determined their company's market value to be $55 million if purchased by another entity. However, the textile company could earn more than $70 million from the retail organization due to synergies.

Therefore, the textile company is motivated to make the negotiation successful. Which of the following approaches is most likely to result in a successful negotiation?

Develop a bargaining zone that lies between $50 million and $70 million and create sets of outcomes between $50 million and $70 million.

Adopt an added-value negotiating strategy, develop a bargaining zone between $50 million and $70 million, and create sets of outcomes between $50 million and $70 million.

Involve a mediator as a neutral party who can work with the textile company's management to determine a bargaining zone.

Develop a bargaining zone that lies between $55 million and $60 million and create sets of outcomes between $55 million and $60 million.

Correct Answer: B

The most effective approach to ensure a successful negotiation would involve adopting an added-value negotiating strategy while developing a bargaining zone between $50 million and $70 million. This ensures that both parties acknowledge the potential synergies and added value that could be generated from the acquisition. By creating sets of outcomes within this range, the parties can find a mutually beneficial agreement that maximizes the value for both the retailer and the textile company. Simply narrowing the bargaining zone to $55 million to $60 million, as suggested in option D, would not fully capture the potential benefits and synergies expected from the acquisition.

Discussion

sdfgdfg345

Who can explain right answer?

[Removed]

Not sure if this is in the scope, however if the market value has been determined at 55 and a forecasted NPV of 60. it makes sense why those are the figures to work around.

Crazyhydra

I dont understand this, can someone explain?

Inkku

Is this really in scope of part 3?