You have been asked to estimate the value of synergy in the merger of StraightCom, a movie streaming firm, and Movie Sorcery, an entertainment company and have been provided with the following information on the two companies:

	StraightCom	Movie Sorcery
Revenues	$760.00	$260.00
After-tax Operating Income next year	$70.00	$40.00
Cost of capital	12.00%	9.00%
Return on capital	10.00%	12.00%
Net Debt	$100.00	$50.00
Number of shares (millions)	125	50

Both firms are in stable growth, growing 3% a year in perpetuity.

a. Estimate the value per share of StraightCom, prior to the merger.

b. Estimate the value per share of Movie Sorcery, prior to the merger.

c. Now assume that combining the two firms will be able to cut annual operating expenses by $22 million (on an after-tax basis), though it will take three years for these costs savings to show up. Estimate the value of synergy in this merger.

d. Assume that both companies were fairly priced before the acquisition and that StraightCom pays a 25% premium over market price to buy Movie Sorcery. Estimate the value per share for StraightCom after the acquisition.

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