5. You are trying to estimate the value of synergy in a merger. The two firms involved, Novotel and VideoGraf, have the following characteristics: Novotel Video Graf $ 160 million $ 450 million BV of Capital (Beginning) $ 1,000 million $ 2,400 million Beta 0.8 0.8 EBIT Debt to Capital Ratio Cost of debt (pre-tax) Neither firm has any working capital requirements, and they are both in stable growth, growing at 5% a year in perpetuity. The tax rate for both firms is 40%, and the treasury bond rate is 5% (The market risk premium is 6.3 %) a. Estimate the value of the combined firm, assuming no synergy. 10% 8% 10% 8%