Exam IIA-CIA-Part3 topic 1 question 186 discussion

Actual exam question from IIA's IIA-CIA-Part3

Question #: 186
Topic #: 1

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?

A. Develop a bargaining zone that lies between $50 million and $70 million and create sets of outcomes between $50 million and $70 million.
B. 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.
C. Involve a mediator as a neutral party who can work with the textile company's management to determine a bargaining zone.
D. Develop a bargaining zone that lies between $55 million and $60 million and create sets of outcomes between $55 million and $60 million.

Show Suggested Answer

Suggested Answer: D 🗳️

by nanz at May 28, 2020, 7:29 a.m.

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137a7a9

2 months, 1 week ago

Selected Answer: D

D is correct because the value needs to lie with the purchaser - in this case the retail org. The value to the textile company is irrelevant.

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Elvoo

3 months, 2 weeks ago

Selected Answer: B

I think should be B. Anyone disagree?

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emtofid

4 months, 4 weeks ago

Selected Answer: B

Added-value negotiating strategy refers to a collaborative approach where both parties work together to expand the value they can share, rather than focusing on dividing the pie. This can help both the retailer and the textile company find creative solutions to increase the value of the deal beyond the initial offers.

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[Removed]

6 months, 3 weeks ago

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.

upvoted 1 times

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