Determining value of combined firm

Reference no: EM13118855

Vonnegut Company and Heller Company are two identical firms that agree to merge. Both have revenues of $1500, operating margin of 15%, a tax rate of 40%, investment rate of 10%, growth rate of 11%, 5 years of supernormal growth followed by zero growth thereafter, and a 9% cost of capital.

a) What are the values of the companies as stand-alone companies?

b) If the combined firm increases its operating margin by 2%, revenues are combined, and the other value drivers remain unchanged, what is the value of the combined firm?

Reference no: EM13118855

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