Assuming that the combined company can save $100 million in costs (pre-tax) after the merger, and that the tax rate is 25%, estimate the value of the combined company after the merger.

 

Hamlin Inc, a steel company is acquiring Potter Inc., another steel company, because it believes that the combined company will be able to cut costs and be more efficient. You have been given the following information on the two companies. Revenues ($ millions) After-tax Operating income ($ million next year) Expected growth rate Return on Capital Cost of capital $ $ Hamlin Steel 1,000.00 200.00 3% 12% 8% $ $ Potter Steel 500.00 100.00 3% 12% 8%