Handout problem 5 The Value of Synergy Higher Growth (A Two Stage FCFF model) Novell Inc announced its plan to acquire WordPerfect Corporation for $1 4 billion At the time of the acquisition, the relevant information on the two companies was as follows Novell WordPerfect Revenues $1,200 00 $600 00 Cost of Goods Sold (w o 57 00 75 00 Depreciation) Depreciation S42 00 $25 00 Tax Rate 35 00 35 00 Capital Expenditures $75 00 $40 00 Working Capital Level (as 40 00 30 00 of Revenue) Beta 1 45 1 25 Expected Growth Rate in 25 00 15 00 High Growth Period Expected period of High 10 years Growth Growth rate After High 6 00 6 00 Growth Period Beta After High Growth 1 10 1 10 period 10 years Neither firm has any debt outstanding The Treasury bond rate is 7 , market risk premium is 5 5 A Estimate the value of Novell, operating independently B Estimate the value of WordPerfect, operating independently C Estimate the value of the combined firm, with no synergy D As a result of the merger, the combined firm is expected to grow 24 a year for the high growth period Beta of the combined firm in the high growth period is 1 4 and after the high growth period is 1 1 Estimate the value of the combined firm with the higher growth E What is the synergy worth Handout problem 5 The Value of Synergy Higher Growth (A Two Stage FCFF model) Novell Inc announced its plan to acquire WordPerfect Corporation for $1 4 billion At the time of the acquisition, the relevant information on the two companies was as follows Novell WordPerfect Revenues $1,200 00 $600 00 Cost of Goods Sold (w o 57 00 75 00 Depreciation) Depreciation S42 00 $25 00 Tax Rate 35 00 35 00 Capital Expenditures $75 00 $40 00 Working Capital Level (as 40 00 30 00 of Revenue) Beta 1 45 1 25 Expected Growth Rate in 25 00 15 00 High Growth Period Expected period of High 10 years Growth Growth rate After High 6 00 6 00 Growth Period Beta After High Growth 1 10 1 10 period 10 years Neither firm has any debt outstanding The Treasury bond rate is 7 , market risk premium is 5 5 A Estimate the value of Novell, operating independently B Estimate the value of WordPerfect, operating independently C Estimate the value of the combined firm, with no synergy D As a result of the merger, the combined firm is expected to grow 24 a year for the high growth period Beta of the combined firm in the high growth period is 1 4 and after the high growth period is 1 1 Estimate the value of the combined firm with the higher growth E What is the synergy worth

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Handout problem 5   The Value of Synergy  Higher Growth (A Two Stage FCFF model) Novell Inc  announced its plan to acquire WordPerfect Corporation for $1 4 billion  At the time of the acquisition, the relevant information on the two companies was as follows  Novell WordPerfect Revenues $1,200 00 $600 00 Cost of Goods Sold (w o 57 00  75 00  Depreciation) Depreciation S42 00 $25 00 Tax Rate 35 00  35 00  Capital Expenditures $75 00 $40 00 Working Capital Level (as   40 00  30 00  of Revenue) Beta 1 45 1 25 Expected Growth Rate in 25 00  15 00  High Growth Period Expected period of High 10 years Growth Growth rate After High  6 00  6 00  Growth Period Beta After High Growth 1 10 1 10 period 10 years Neither firm has any debt outstanding  The Treasury bond rate is 7 , market risk premium is 5 5   A  Estimate the value of Novell, operating independently  B  Estimate the value of WordPerfect, operating independently  C  Estimate the value of the combined firm, with no synergy  D  As a result of the merger, the combined firm is expected to grow 24  a year for the high growth period  Beta of the combined firm in the high growth period is 1 4 and after the high growth period is 1 1  Estimate the value of the combined firm with the higher growth  E  What is the synergy worth  Handout problem 5   The Value of Synergy  Higher Growth (A Two Stage FCFF model) Novell Inc  announced its plan to acquire WordPerfect Corporation for $1 4 billion  At the time of the acquisition, the relevant information on the two companies was as follows  Novell WordPerfect Revenues $1,200 00 $600 00 Cost of Goods Sold (w o 57 00  75 00  Depreciation) Depreciation S42 00 $25 00 Tax Rate 35 00  35 00  Capital Expenditures $75 00 $40 00 Working Capital Level (as   40 00  30 00  of Revenue) Beta 1 45 1 25 Expected Growth Rate in 25 00  15 00  High Growth Period Expected period of High 10 years Growth Growth rate After High  6 00  6 00  Growth Period Beta After High Growth 1 10 1 10 period 10 years Neither firm has any debt outstanding  The Treasury bond rate is 7 , market risk premium is 5 5   A  Estimate the value of Novell, operating independently  B  Estimate the value of WordPerfect, operating independently  C  Estimate the value of the combined firm, with no synergy  D  As a result of the merger, the combined firm is expected to grow 24  a year for the high growth period  Beta of the combined firm in the high growth period is 1 4 and after the high growth period is 1 1  Estimate the value of the combined firm with the higher growth  E  What is the synergy worth

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Handout problem 5 - The Value of Synergy: Higher Growth (A Two-Stage FCFF model) Novell Inc. announced its plan to acquire WordPerfect Corporation for $1.4

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