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Firm A is considering a merger/acquisition with Firm B. Firm A: Market value of debt: $2 million Market value of equity: $4 million Number of shares:...
Firm A is considering a merger/acquisition with Firm B.
Firm A:
Market value of debt: $2 million
Market value of equity: $4 million
Number of shares: 200,000
Firm B:
Market value of debt: $5 million
Market value of equity: $5 million
Number of shares: 500,000
Investment rate for the combined firm (bA+B): 70%
WACC for the combined firm (WACCA+B): 10%
Total net operating income before synergy gain: (X): $3 million
Synergy rate (a): 15%
Corporate tax rate (T): 40%
Growth rate for the combined firm (g): 14.4%
Number of years for the growth: 10
According to the Weston/Copeland model, what is the total synergy gain from the merger?
