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Find the value of the synergy as estimated by the analyst

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Reference no: EM132939197

Company A is preparing a deal to acquire company B. Company B's equity is trading at 4.3 B dollars (market value of equity). Company A is planning to pay a 32% premium for company B.

Annual Cost Savings = 175m
Cost Savings = 3% annually at year 3
After Tax Integration Cost = 250m at year 0
Tax Rate = 21%
Cost of Capital = 9%

Problem a) Compute the value of the synergy as estimated by the analyst. Please show your calculations.

Problem b) Does the estimate of synergies in a) justify the premium that company A offered to company B?

Reference no: EM132939197

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