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    Synergy Valuation

    Uploaded by

    robinkapoor
    The document provides inputs and computed values for valuing an acquiring firm, target firm, and the combined firm after a merger. It includes inputs like the riskfree rate, risk premium, betas, costs of debt and equity, revenues, operating income, tax rates, and growth assumptions. It then computes the costs of capital and expected growth rates for each firm and the combined firm. It values each firm individually using a discounted cash flow model and finds a small amount of synergy value from merging the two firms.

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    Attribution Non-Commercial (BY-NC)
    Download as XLS or read online from Scribd

    Synergy Valuation

    Uploaded by

    robinkapoor
    756 views2 pages
    The document provides inputs and computed values for valuing an acquiring firm, target firm, and the combined firm after a merger. It includes inputs like the riskfree rate, risk premium, betas, costs of debt and equity, revenues, operating income, tax rates, and growth assumptions. It then computes the costs of capital and expected growth rates for each firm and the combined firm. It values each firm individually using a discounted cash flow model and finds a small amount of synergy value from merging the two firms.

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    The document provides inputs and computed values for valuing an acquiring firm, target firm, and the combined firm after a merger. It includes inputs like the riskfree rate, risk premium, betas, costs of debt and equity, revenues, operating income, tax rates, and growth assumptions. It then computes the costs of capital and expected growth rates for each firm and the combined firm. It values each firm individually using a discounted cash flow model and finds a small amount of synergy value from merging the two firms.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS or read online from Scribd
    Download as xls
    756 views2 pages

    Synergy Valuation

    Uploaded by

    robinkapoor
    The document provides inputs and computed values for valuing an acquiring firm, target firm, and the combined firm after a merger. It includes inputs like the riskfree rate, risk premium, betas, costs of debt and equity, revenues, operating income, tax rates, and growth assumptions. It then computes the costs of capital and expected growth rates for each firm and the combined firm. It values each firm individually using a discounted cash flow model and finds a small amount of synergy value from merging the two firms.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS or read online from Scribd
    Download as xls
    of 2

    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

    Acquiring firm Target Firm After merger In terminal year


    Beta 1.20 0.90 1.08838 1.09
    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
    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
    that stable growth rate = riskfree rate.

    terminal year

    terminal year (Weights based on terminal value)

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