Ccma
Assignment 2 (CCMA)
Solution 1: Refer attached excel sheets for all the four parts. The answers are marked in RED in Excel sheet.
I) Enterprise value of digital = $3,738,409,979.20
II) (a) Total value = 6,753,044,375.39
(b) Value of control = $3,014,634,396.19
III) Enterprise value of Compaq = $39,429,435,518.34
IV) (a) Unlevered beta for year 1-5 = 1.1
Unlevered beta after year 5 = 0.8
(b) Equity beta for year 1-5 = 1.25
Equity beta after year 5 = 1
(c) Firm value of combined firm = $46,922,470,722.61
(d) Value from synergy = $3,754,625,225.07
Solution 2: Refer attached excel sheet for both the parts.
a) (i) Average cost curve as plotted in excel.
(ii) For optimal quantity, differentiate the trend-line equation and equate it to 0.
2*0.0492x-0.5549 = 0
x = 5.639228
(iii) Optimal quantity is greater than combined quantity of 5 units; hence cost synergies will be realized by economies of scale. Both target and acquirer firm move closer to optimum quantity, the merger will produce cost synergies.
b) (i) Average cost curve as plotted in excel.
(ii) For optimal quantity, differentiate the trend-line equation and equate it to 0.
2*0.0492x-0.3049 = 0
x = 3.098577
(iii) Optimal quantity is less than combined quantity of 5 units; hence merger will lead to diseconomies of scale and no cost synergies would be
Solution 1: Refer attached excel sheets for all the four parts. The answers are marked in RED in Excel sheet.
I) Enterprise value of digital = $3,738,409,979.20
II) (a) Total value = 6,753,044,375.39
(b) Value of control = $3,014,634,396.19
III) Enterprise value of Compaq = $39,429,435,518.34
IV) (a) Unlevered beta for year 1-5 = 1.1
Unlevered beta after year 5 = 0.8
(b) Equity beta for year 1-5 = 1.25
Equity beta after year 5 = 1
(c) Firm value of combined firm = $46,922,470,722.61
(d) Value from synergy = $3,754,625,225.07
Solution 2: Refer attached excel sheet for both the parts.
a) (i) Average cost curve as plotted in excel.
(ii) For optimal quantity, differentiate the trend-line equation and equate it to 0.
2*0.0492x-0.5549 = 0
x = 5.639228
(iii) Optimal quantity is greater than combined quantity of 5 units; hence cost synergies will be realized by economies of scale. Both target and acquirer firm move closer to optimum quantity, the merger will produce cost synergies.
b) (i) Average cost curve as plotted in excel.
(ii) For optimal quantity, differentiate the trend-line equation and equate it to 0.
2*0.0492x-0.3049 = 0
x = 3.098577
(iii) Optimal quantity is less than combined quantity of 5 units; hence merger will lead to diseconomies of scale and no cost synergies would be