Base Year Forecasting Period Terminal Year

0 1 2 3 4 5
Revenues 1600 1920 2304 2765 3318 3650
EBIT 240 288 346 415 498 547
NOPAT 156 187 225 270 323 356
Capex 200 240 288 346 415 0
Dep 120 144 173 207 249 0
WC 400 480 576 691 829 912
Change in WC 80 96 115 138 83
FCFF 11 13 16 19 273
Discount Factor 0.88 0.77 0.67 0.59 0.53
PV of explicit forecast period 9.81 10.31 10.84 11.40 42.37
Terminal Value 7687
PV of terminal value 4072
WACC for high growth rate = 0.4 [12% + 1.25 x 7%] + 0.6 [15% (1 - .35)] 14.15%
WACC for stable growth rate = 0.5 [12% + 1.00 x 6%] + 0.5 [14% (1 - .35)] 13.55%
EV (million) 4114
a) Inventory Turnover = COGS / Average Inventory b)
 Terminal Year
Year 1 2 3 4
Growth rate 20% 20% 20% 5%
EBIT (1-t) 100 120 144 151.2

Cost of Equity 15.00% 14.50% 14.00% 12.50%

Cost of Debt (Pre tax) 7% 7% 7% 7%
Debt to Capital Ratio 10% 20% 30% 40%

Return on Capital 25% 25% 25% 15%

EBIT (1-t) $ 100.00 $ 120.00 $ 144.00 $ 151.20

- Reinvestment $ 80.00 $ 96.00 $ 115.20 $ 50.40
FCFF $ 20.00 $ 24.00 $ 28.80 $ 100.80
Terminal Value $ 2,411.48
Cost of Capital 13.92% 12.44% 11.06% 9.18%
Discount Factor 87.78% 79.10% 73.00% 70.38%
PV $ 17.56 $ 18.98 $ 21.02 $ 1,697.12
Value of Firm = $ 1,754.68
Reinv. Rate 80.0% 80.0% 80.0% 33.3%
 SBI PNB Combined Value With Synergy
Net Income $ 144.00 $ 250.00 $ 394.00 $ 424.00
Book Value of Equity $ 1,200.00 $ 2,500.00 $ 3,700.00 $ 3,700.00
Beta 1.00 1.00 1.00 1.00

$ 1,387.64 $ 1,927.27 $ 3,314.91 $ 3,893.09

Value of Synergy = $ 3893 - $3315 = $ 578.18
Revenues 12500 Revenues 12500
- Oper. Exp 11000 - Oper. Exp 11000
- Deprecn 2000 - Deprecn 2000
EBIT -500 EBIT -500
- Int. Exp 1000 - Int. Exp 1000
Taxable Income -1500 Taxable Income -1500
- Taxes 0 - Taxes 0
Net Income -1500 Net Income -1500

a. Value of Firm = 15000

Value of Debt = 8500
Value of Equity = 6500