Valuing Synergies-Oracle Acquisition of PeopleSoft: Oracle Corporation acquires another business software applications vendor, PeopleSoft, Inc., for approximately $10.3 billion. Oracle expects to achieve various synergies, and its strategy is to continue to support existing versions of PeopleSoft software solutions, create Oracle software to replace all of PeopleSoft's software, and then migrate PeopleSoft customers to Oracle software. Assume that as a result of the merger, the company expects annual selling and administrative costs to decrease by $750 million, annual research and development costs to decrease by $300 million, and annual general and administrative costs to decrease by $200 million. Also, assume that Oracle will be able to migrate about 80% of PeopleSoft's customers (roughly 10,000) and $3 billion in revenue but that it will lose the remaining 20%. Assume that the company will incur $400 million in fees, expenses, and integration- and synergy-related costs in the first year after the merger and none thereafter. Assume that the appropriate dis- count rate for discounting synergies is 12%: that the post merger income tax rate is 40% on all income: that revenues are expected to grow with inflation, which is expected to be 3% annually and that variable costs are, on average, 55% of revenues. Measure the value of the synergies, assuming that the cost synergies begin in the first year after the merger, remain constant for the following two years despite inflation and then decline at a rate of 10% in perpetuity beginning in the fourth year after the merger. Also assume that the migration of the customers will take place immediately after the merger and impact the Year 1 cash flows. Valuing Synergies-Oracle Acquisition of PeopleSoft: Oracle Corporation acquires another business software applications vendor, PeopleSoft, Inc., for approximately $10.3 billion. Oracle expects to achieve various synergies, and its strategy is to continue to support existing versions of PeopleSoft software solutions, create Oracle software to replace all of PeopleSoft's software, and then migrate PeopleSoft customers to Oracle software. Assume that as a result of the merger, the company expects annual selling and administrative costs to decrease by $750 million, annual research and development costs to decrease by $300 million, and annual general and administrative costs to decrease by $200 million. Also, assume that Oracle will be able to migrate about 80% of PeopleSoft's customers (roughly 10,000) and $3 billion in revenue but that it will lose the remaining 20%. Assume that the company will incur $400 million in fees, expenses, and integration- and synergy-related costs in the first year after the merger and none thereafter. Assume that the appropriate dis- count rate for discounting synergies is 12%: that the post merger income tax rate is 40% on all income: that revenues are expected to grow with inflation, which is expected to be 3% annually and that variable costs are, on average, 55% of revenues. Measure the value of the synergies, assuming that the cost synergies begin in the first year after the merger, remain constant for the following two years despite inflation and then decline at a rate of 10% in perpetuity beginning in the fourth year after the merger. Also assume that the migration of the customers will take place immediately after the merger and impact the Year 1 cash flows