18. Classical Equipment (CE) is a leading manufacturer of programmable calculators and it is targeting to acquire Numeric Equipment (NE), a leading manufacturer of scientific calculators. The main motive behind the acquisition by CE is that NE is perceived to be poorly managed and the acquisition of the same will help in managing the firm optimally and increasing its value. The increase in value after the change in management is technically termed as value of control. Moreover, the acquisition is expected to bring synergies both in terms of cost savings and revenue growth. NE posted operating income of 425.14 million and revenues of 15,452 million in the current year. It incurred capital expenditure of 256.45 million and provided 198.63 million for depreciation purpose. Its working capital requirements are 10% of revenues. Revenues, operating income and net capital expenditure are expected to grow at 8% a year for the next five years. After that, the revenues and operating income are expected to grow at 5% a year forever. However, net capital expenditure is expected to be zero. Currently, beta of its equity shares is 1.2 and debt ratio is 20%. After 5 years, beta is expected to come down to 1. Its cost of debt is 12%. However, if it is acquired by CE, its revenues, operating income and net capital expenditure are expected to grow at 12% a year for the next five years. Working capital requirements are estimated at 10% of revenues. After 5 years, growth rate in operating income and revenues are expected to stabilize at 7% a year forever and net capital expenditure is expected to be zero. CE is planning to increase debt ratio to 40% and as a result, cost of debt is expected to increase to 12.5%. Its equity beta is expected to be 1.25 during the first 5 years and decrease to 1 thereafter. Both the companies fall under the tax bracket of 34%. Treasury bills are yielding 6% a year and historically Sensex is generating a premium of 6% a year. Using free cash flow to firm model, you are required to: a) Determine the value of Numerical Equipment under the current Management b) Determine the value of Numerical equipment under the management of Classical Equipment. c) Determine the value of control