I am having trouble with finding out what numbers to use and how to solve this practice question. I think I have to estimate the FCF (free cash flow) from the latest numbers I can get (pre merger), and then use the price offered by Xerox to figure out what that means the expected FCF should be (what xerox believes the FCF from the merger will be. In other words, I know there is an implied FCF number to the offer xerox made. As I have the combined expected worth, I should be able to find the cash flow that supports that number (combined worth). However, I am not sure how to attack this problem, and what pieces I need and do not need in order to solve the question.. Thank you so much for any help!

Xerox made an offer to buy HP in a merger where Xerox will be the surviving corporation.

These are the details about the proposed offer by Xerox:

• Xeroxs bid consists of 77% cash and 23% stock, or $17 in cash and 0.137 Xerox share for each HP share. The deal, if accepted, is expected to generate about $2 billion in cost synergies and result in HP holders owning 48% of the company.

• Nearly a month ago on Oct. 10, HP closed at $16.03. The offer represents a 37% gain from that low. The shares traded on Thursday at $19.61, below the offer price as investors have their doubts the deal will go through. Concerns about the tie-up largely stem from the wide size disparity between HP and Xerox. HP, worth $29 billion, is more than three times the size of Xerox in terms of market cap.

• At the close, the combination would leave the company five times levered and three times levered within 24 months, though the tie-up is expected to leave its debt investment grade.

I am supposed to evaluate the known details of the proposed takeover and answer the following: (I can assume perpetuity, and I think I also have to make other assumptions, but not sure what. The calculations are not supposed to be hard or complicated at all)

(a) Show how HP shareholders will own 48% of the new company

(b) How much cash is required for Xerox to complete the deal and where is Xerox getting the money?

(c) What are synergies for the deal (as explained by Xerox)?

(d) Give an estimate of the combined free cash flows of the two companies: before the merger (no synergies) and after the merger (with synergies)

(e) what is the estimated debt/equity ratio of the combined company after the merger?