G & P is a diversified consumer product company with $ 2 billion in capital invested, a return on capital of 13%, and a cost of capital of 11%. The firm is assumed to be in stable growth, and the EVA is expected to grow 5% a year in perpetuity. BandAdd is a smaller company that produces only perfumes. It has $ 500 million in capital invested, earning a return on capital of 16% with a cost of capital of 12%. This firm is also in stable growth, and the EVA is expected to grow 5% a year in perpetuity. Both firms have 40% tax rates. a. Value G & P using the EVA approach. b. Value BandAdd using the EVA approach. c. As a result of the merger, you expect the firm to be able to lower its cost of capital to 10% (as a result of increased debt capacity) and to post an increase in the combined operating income of 10% (as a result of economies of scale). Estimate the value of synergy in this merger.

Already completed: A & B

c. Capital Invested =	2500
Combined Operating Income =
Restated Operating Income =
Restated EVA =
PV of EVA, assuming 5% growth =
New Firm Value =
Value of Synergy =