synergyvaluation - Cost of Equity = 9.05% 7.85% 8.60% 8.61%...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Inputs Current riskfree rate = 4.25% Risk Premium = 4.00% I will assume that there are zero excess returns beyond your high growth phase and that stable growth rate = riskfree rate. Acquiring firm Target Firm After merger In terminal year Beta 1.20 0.90 1.08838 1.09073955 Pre-tax cost of debt 5.00% 5.00% 5.00% Tax rate 30.00% 30.00% 30.00% Debt to Capital Ratio 10.00% 10.00% 10.00% Revenues $1,000.00 $500.00 $1,500.00 Operating Income (EBIT) $50.00 $25.00 $75.00 Pre-tax return on capital 15.00% 15.00% 15.00% Reinvestment Rate = 70.00% 70.00% 70.00% Length of growth period = 5 5 5 Computed Values Acquiring firm Target firm Value of firm with synergy In terminal year (Weights based on terminal value)
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Cost of Equity = 9.05% 7.85% 8.60% 8.61% After-tax cost of debt = 3.50% 3.50% 3.50% 3.50% Cost of capital = 8.50% 7.42% 8.09% 8.10% After-tax return on capital = 10.50% 10.50% 10.50% Reinvestment Rate = 70.00% 70.00% 70.00% Expected growth rate= 7.35% 7.35% 7.35% Value of firm PV of FCFF in high growth $50.86 $26.20 $77.14 Terminal value = $612.34 $350.76 $963.10 Value of firm today = $458.19 $271.50 $729.79 Value of Synergy Value of independent firms $729.68 Value of combined firm $729.79 Value of synergy $0.11...
View Full Document

This note was uploaded on 01/30/2012 for the course FIN 6000 taught by Professor Banko during the Fall '11 term at University of Florida.

Ask a homework question - tutors are online