Handout problem 5 - The Value of Synergy: Higher Growth (A Two-Stage FCFF model) In April 1994, 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: WordPerfect $600.00 75.00% $25.00 35.00% $40.00 30.00% Novell Revenues $1,200.00 Cost of Goods Sold (w/o 57.00% Depreciation) Depreciation $42.00 Tax Rate 35.00% Capital Spending $75.00 Working Capital (as % of 40.00% Revenue) Beta 1.45 Expected Growth Rate in High-25.00% Growth Period Expected Period of High Growth Growth rate After High 6.00% Growth Period Beta After High-Growth period 1.10 1.25 15.00% 10 years 10 years 6.00% 1.10 Capital spending will be offset by depreciation after the high-growth period. Neither firm has any debt outstanding. The treasury bond rate is 7%, market risk premium is 5.5%. Capital spending will be offset by depreciation after the high-growth period. 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. 12,663.95 is answer 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? What is the maximum price that Novell can pay for Wordperfect? Please do in Excel and show formulas!!!!! :) thank you so much Handout problem 5 - The Value of Synergy: Higher Growth (A Two-Stage FCFF model) In April 1994, 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: WordPerfect $600.00 75.00% $25.00 35.00% $40.00 30.00% Novell Revenues $1,200.00 Cost of Goods Sold (w/o 57.00% Depreciation) Depreciation $42.00 Tax Rate 35.00% Capital Spending $75.00 Working Capital (as % of 40.00% Revenue) Beta 1.45 Expected Growth Rate in High-25.00% Growth Period Expected Period of High Growth Growth rate After High 6.00% Growth Period Beta After High-Growth period 1.10 1.25 15.00% 10 years 10 years 6.00% 1.10 Capital spending will be offset by depreciation after the high-growth period. Neither firm has any debt outstanding. The treasury bond rate is 7%, market risk premium is 5.5%. Capital spending will be offset by depreciation after the high-growth period. 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. 12,663.95 is answer 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? What is the maximum price that Novell can pay for Wordperfect? Please do in Excel and show formulas!!!!! :) thank you so much
