Question
hantom Computing and Ghostly Notebooks, formerly competitors in the computing industry, have agreed to merge. Phantoms management is fairly certain that the projected cost synergiesmostly
hantom Computing and Ghostly Notebooks, formerly competitors in the computing industry, have agreed to merge. Phantoms management is fairly certain that the projected cost synergiesmostly to come from layoffs and restructuringare achievable. It is less certain about the achievability of the revenue enhancements, which are expected to come from greater market power and from cross-selling the products and services of both firms. Management estimates that the net present value (NPV) of revenue synergies, discounted at a WACC of 10 percent, should be worth at least $1.2 billion in order to ensure that the deal is value enhancing. Based on the following information, how much should the annual revenue enhancements (in constant dollars) be in order to achieve the desired NPV? (15%)\ Expected inflation rate
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