5. The merger between Storsj Viltmat AB and KSM - Klvsj Skogens Mat AB

You have to been asked to look at some data of the merger between Storsj Viltmat AB and KSM - Klvsj Skogens Mat AB and to answer some questions of the financial outcome of the transaction.

- The main reason for the merger is the cost savings of the combined company

- The cost savings are expected to be SEK 10 Million (pre-tax) next year.

- These savings are expected to grow 5% a year in perpetuity

- No new debt will be issued after the merger

- Storsj Viltmat AB has a beta of 1.20, Equity (MV) of SEK 100 Million and Debt (MV/BV) of SEK 80 Million

- KSM - Klvsj Skogens Mat AB has a beta of 1.30, Equity (MV) of SEK 150 Million and Debt (MV/BV) of SEK 50 Million

- Both firms have

• a pre-tax cost of debt of 7%
• a tax rate of 30%.

Further, the risk-free rate is 5% and the market risk premium is 4%.

Estimate the cost of capital for the combined firm

Estimate the value of the synergy