What is the synergy worth? what is the maximum price novell can pay

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In April 1994, Novell, Inc. announced its plan to acquire WordPerfect Corporation for

$1.4billion.

Atthetimeoftheacquisition,therelevantinformationaboutthetwo companies was as follows:

 

 

Novell

WordPerfect

Revenues

$1,200.00

$600.00

Costof Goods Sold (w/o Depreciation)

57.00%

75.00%

Depreciation

$42.00

$25.00

Tax Rate

35.00%

$25.00%

CapitalSpending

$75.00

$40.00

WorkingCapital(as%ofRevenue)

40.00%

30.00%

Beta

1.45

1.25

ExpectedGrowth Rate in Revenues/EBIT

25.00%

15.00%

ExpectedPeriod of High Growth

10years

10years

GrowthrateAfterHigh-GrowthPeriod

6.00%

6.00%

BetaAfterHigh-Growthperiod

1.10

1.10

 

Capital spending will be offset by depreciation after the high-growth period. Neither firm has any debt outstanding. The treasury bond rate is 7%.

a. Estimate the value of Novell, operating independently.

 

b. Estimate the value of WordPerfect, operating independently. c. Estimate the value of the combined firm, with no synergy.

d. As a result of the merger, the combined firm is expected to grow 24% a year for the high-growth period. Estimate the value of the combined firm with the higher growth.

e. Whatis thesynergyworth? Whatisthe maximumpriceNovell canpayfor WordPerfect?

The post What is the synergy worth? what is the maximum price novell can pay appeared first on oneacademyessays.

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