What is the value of the target firm to the bidding firm

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Reference no: EM132041823

Two identical firms have yearly after-tax cash flows of $20 million each, which are expected to continue into perpetuity. If the firms merged, the after-tax cash flow of the combined firm would be $42 million. Assume a cost of capital of 12%. Does the merger generate synergy? What is change in overall firm value from the merger? What is the value of the target firm to the bidding firm?

Reference no: EM132041823

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