You have been asked to value two companies independently and to determine if the two companies merge, what is the increase or decrease in valuation after the merger. The facts are:

Company A 2019 2020 2021 2022 2023

(Historical)

Operating Income $18 $20 $21 $21.63 $22.28

Tax Rate 21.00% 21.00% 21.00% 21.63% 22.28%

Operating Assets $12 $14 $15 $16 $16

Operating Liabilities $6 $6 $8 $10 $11

WACC 12% 12% 12% 11% 11%

Terminal Growth Rate 3%

NonOperating Liabilities NONE

Company B 2019 2020 2021 2022 2023

(Historical)

Operating Income $26 $30 $33 $40 $41

Tax Rate 21.00% 21.00% 21.00% 21.00% 21.00%

Operating Assets $15 $18 $16 $19 $21

WACC 12% 12% 12% 11% 11%

Terminal Growth Rate 3%

NonOperating Liabilities <$12>

Merged Company 2019 2020 2021 2022 2023

(Historical)

Estimated Expenses

saved by merging $3 $4 $5 $5

Tax Rate 21% 21% 21% 21% 21%

WACC 12% 12% 12% 11% 11%

Terminal Growth Rate 3%

Non-Operating Liabilities <$12>

Answer these questions

a) what is the valuation of Company A?

b) what is the valuation of Company B?

C) what is the valuation of the merged Company?