VALUING SYNERGY: WORKSHEET

SYNERGY VALUATION WORKSHEET

Enter the following information on the bidding firm Current Financial Information Revenues in current year = Operating Expenses as % of Revenues = Tax Rate on income = Interest Expenses = Current Depreciation = Current Capital Spending = Working Capital as % of Revenue = Projections of growth in earnings Expected growth rate - next 5 years = Expected growth rate - after 5 years = Risk measures Beta of the stock = 1.35 6.46% 2.00% $4,819.00 CSX 82.00% 36.50% $270.00 $1,130.00 $1,553.00 -28.00% $11,300.00 12029.98 Operating expenses include depreciation

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Enter the following information on the target firm Current Financial Information Revenues in current year = Operating Expenses as % of Revenues = Tax Rate on income = Interest Expenses = Current Depreciation = Current Capital Spending = $3,686.00 CONRAIL 87.60% 32.65% $194.00 $641.00 $641.00 $6,410.00 6625.376 Operating expenses include depreciation

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Working Capital as % of Revenue = Projections of growth in earnings Expected growth rate - next 5 years = Expected growth rate - after 5 years = Risk measures Beta of the stock =

1.00%

3.36% 2.00%

1.30

General Information Current riskfree rate = Risk premium over riskfree rate = 5.11% 3.03%

Information on Synergy benefits What form does the synergy benefit take? 2 (1: Cost reduction ; 2:Cost reduction and Increase growth: 3: Only increase growth)

I. The cost of goods sold without synergy is

84.43% 83.00%

If the synergy is going to reduce costs, enter the new cost of goods sold

IIa. The growth rate in earnings in the next five years without synergy is If the synergy will increase growth, enter the new growth rate

3.91% 5.00%

IIb. The growth rate after year 5 is expected to be If the synergy will increase this growth rate, enter the new growth rate

2.00% 2.00%

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Bidder Free Cashflow to Equity Growth rate for first 5 years Growth rate after five years Beta Req. rate of return Riskfree Rate $38.24 6% 2% 1.35 9.20% 5.11%

Target $175.98 3% 2% 1.30 9.05%

A+B: No synergy A+B (Synergy) $214.21 3.91% 2.00% 1.31 9.08% $300.05 5.00% 2.00% 1.31 9.08% Weighted by present values of A and B

YEAR 1 2 3 4 5 PRESENT VALUE

FCF (A) $40.71 $43.34 $46.14 $49.12 $52.29

Term Val (A)

FCF (B) $181.89 $188.00 $194.32 $200.85

Term. Val (B)

FCF (A+B) $222.60 $231.34 $240.45 $249.96

TV (A+B)

FCF (A+B:S) $315.06 $330.81 $347.35 $364.72

TV (A+B:S)

$740.75 $654.30

$207.59

$3,003.91 $2,699.33

$259.89

$3,744.66 $3,353.67

$382.95

$5,518.25 $4,913.72

Gains from synergy = Most that bidder firm can bid for target = % Premium over the market price =

$1,560.06 $4,259.39 57.79%