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Firms A and B are competitors with very similar assets and business risks. Both are all-equity firms with aftertax cash flows of $10 per year
Firms A and B are competitors with very similar assets and business risks. Both are all-equity firms with aftertax cash flows of $10 per year forever. Both have an overall cost of capital of 10%. Firm A is thinking of buying Firm B. The aftertax cash flow from the merged firm would be $21 per year. Does the merger create synergy? What is V*B? What is change in V
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