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Current riskfree rate = 6.00%
Risk premium over riskfree rate = 5.50%
IIa. The growth rate in earnings in the next five years without synergy is 16.26%
If the synergy will increase growth, enter the new growth rate 20.00%
YEAR FCF (A) Term Val (A) FCF (B) Term. Val (B) FCF (A+B) TV (A+B) FCF (A+B:S) TV (A+B:S)
1 $113.25 $40.00 $153.25 $158.17
2 $130.24 $48.00 $178.24 $189.81
3 $149.77 $57.60 $207.37 $227.77
4 $172.24 $69.12 $241.36 $273.32
5 $198.07 $3,470.40 $82.94 $1,510.64 $281.02 $4,981.04 $327.99 6634.01
PRESENT VALUE $2,497.48 $1,025.48 $3,523.56 $4,523.83
NOTES:
(1) It is not simple to back out the growth rates for the combined firm when there is no synergy because growth rates will change.
(2) It is far simpler to remember that in the absence of synergy the cashflows, terminal value and present value of the combined firm
will always be equal to the sum of the same for the individual firms.
(3) To back out the terminal growth rate of the combined firm in the absence of synergy, use the combined terminal value estimated
in conjunction with the required rate of return to solve for the terminal growth rate.
crease growth)
VALUING SYNERGY: WORKSHEET 57
VALUING SYNERGY: WORKSHEET 58
VALUING SYNERGY: WORKSHEET 59
n the statement.