Basedontheseassumptions,thecashflowsandvalueofthe
combined firm, with synergy, can be estimated (dollar
amounts in millions):
Asintheothervaluations,weassumenoexcessreturnsafter
year 5.
Theterminalvalueisestimatedusingthecashflowsinthe
terminalyear,thecostofcapitalinperpetuity(7.10%)andthe
expected growth rate of 4.25%:
Discountingtheexpectedfreecash flowsfor thenextfive
yearsandtheterminalvaluebacktothepresentyieldsavalue
for the combined firm of $163,872 million.
Thevalue ofthecombined firm withsynergy is $163,872
million.Thiscanbecomparedtothevalueofthecombined
firmwithoutsynergyof$158,467million,andthedifference
is the value of the synergy in the merger.
Value of combined firm (with synergy) $163,872 million