10% 5. Before their merger, Northrop and Grumman operating and financial metrics are as follows: Northrop Grumman Revenues ($m) $4,400 $3,125 Cost of goods sold (% of Rev) 87.5% 89% Depreciation ($m) $200 $74 Working capital (% of Rev) 10% Ratio of debt to equity 0.08 0.19 Both firms are expected to grow at 5% a year in perpetuity. Both firms need to continue to invest in fixed assets at the rate of depreciation. The beta for both firms is 1 and their cost of debt is 8.5%. The corporate tax rate is 35%. The risk free rate is 7% and the equity market risk premium is 5.5% As a result of the merger, the combined firm will have both stronger purchasing power and market power. The cost of goods sold will fall to 86% of revenue. What's the value of the deal's synergies? Show your calculation and state your assumptions if required. (6-8 marks) 10% 5. Before their merger, Northrop and Grumman operating and financial metrics are as follows: Northrop Grumman Revenues ($m) $4,400 $3,125 Cost of goods sold (% of Rev) 87.5% 89% Depreciation ($m) $200 $74 Working capital (% of Rev) 10% Ratio of debt to equity 0.08 0.19 Both firms are expected to grow at 5% a year in perpetuity. Both firms need to continue to invest in fixed assets at the rate of depreciation. The beta for both firms is 1 and their cost of debt is 8.5%. The corporate tax rate is 35%. The risk free rate is 7% and the equity market risk premium is 5.5% As a result of the merger, the combined firm will have both stronger purchasing power and market power. The cost of goods sold will fall to 86% of revenue. What's the value of the deal's synergies? Show your calculation and state your assumptions if required. (6-8 marks)