1. These two companies are proposing a merger (SHOW WORK AND ANSWERS PLEASE)

	company 1	company 2
Revenues	$4,500	$3,150
COGS (without dep)	87.50%	89%
Depreciation	$300	$75
Tax Rate	35%	35%
Working Capital	10% of revenues	10% of revenues
Market Value of equity	$2,000	$1,300
Outstanding debt	$160	$250

Both firms are expected to grow 5% a year in perpetuity. Capital spending is expected to be offset by depreciation. The beta for both firms is 1 and both firms are BBB rated, with an interest rate on debt of 8.5% (T-bond rate is 5%)

As a result of this merger, the combined firm is expected to have a COGS of only 86% of revenues. The combined firm does not plan to borrow additional debt.

1. Estimate the value of company 1 independently.
2. Estimate the value of company 2 independently.
3. Estimate the value of combined firm, with no synergy.
4. Estimate the value of combined firm, with synergy
5. How much is the synergy worth?