Assume it is January 1, 1994 and Northrop and Grumman are considering a merger. Here is some information on Northrop and Grumman.

	Fiscal year ending December 31, 1993 (amounts are in $ millions)
	Northrop	Grumman
Revenues	$4,400.00	$3,125.00
Cost of Goods Sold (with depreciation)/revenue	87.50%	89.00%
Tax Rate (both marginal tax rate and cash tax rate)	35%	35%
Operating working capital/revenue	10%	10%
Debt (book value)	$430	$730
Market Value of Equity	$4970	$3070

Both firms are in steady state and are expected to grow 5% a year in the long-term. The firms have no other pre-tax operating expenses except the cost of goods sold. Capital expenditure is expected to offset depreciation. The equity beta for both firms is 1, and both firms are rated A. Bonds with A rating offer an average yield to maturity of 7.5%. The Treasury bond rate is 7%. The market risk premium is 5 percent.

As a result of the merger, the combined firm is expected to have a cost of goods sold of only 86% of total revenues (which is the only source of operating synergy in the merger). The combined firm does not plan to borrow additional debt. Assume that the combined firm debt would also be rated A. Beta of equity of the combined firm will remain at 1.0 if it does not borrow additional debt.

(a) Estimate the value of Grumman, operating independently.

(b) Estimate the value of Northrop, operating independently.

(c) Estimate the value of the combined firm, with no synergy.

(d) Estimate the value of the combined firm, with synergy. Use the same WACC as in (c).

(e) How much is operating synergy worth?

(f) Now assume that as a result of the merger, the firms optimal debt ratio increases to 30% of firm value from current levels. At that level of debt, the combined firm will have a BB rating, with an interest rate on its debt of 8%. Estimate the value of the combined firm (with synergy) if it moves to its optimal debt ratio.

Please round your answers to nearest millions of dollars.