Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

Acquiring FirmTarget Firm

Cost of equity 7.45% 9.05%

After-tax cost of debt 3.50% 3.50%

Cost of capital 7.06% 8.50%

After-tax return on capital 8.40% 21.00%

Reinvestment rate 50.00% 80.00%

Expected growth rate 4.20% 16.80%

Value of firm

PV of FCFF in high growth$80.74 $21.95

Terminal value $635.31 $466.84

Value of firm today $532.55 $332.49

Insummary,synergycancomefromoperatingandfinancial
sourcesand canaffect different inputsin valuation.Figure
15.2summarizestheinputsthataremostlikelytobeaffected
by each type of synergy and the effects on value.

FIGURE 15.2Synergy and Value