Group No 5

Lianne Paes-628
Mandar Khanvilkar-630
Marshaneil Sequeira-631
Morvin Rodrigues-633
Nestor Tauro-636

EBITDA
Capex
Depreciation
Revenue
Tax rate
WC
Revenue growth rate
Net capex
Operating income
Growth rate for 5 years
Ter. G rate

Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
High Growth
Debt
Equity
Rf
Rm-Rf
Beta
Kd(1-t)
Ke
WACC
Stable Growth
Debt
Equity
Rf
Rm-Rf
Kd(1-t)
Beta

3%

15%

1
2
3
4
5

1997 (IN $ MILLION)

391.38
475
461
13046
36%
1956.90
6%
6%
6%
6%
5%

1956.90
2074.314
2198.773
2330.699
2470.541
2618.774

0.1
0.9
6%
5.50%
1.15
5%
12.33%
11.59%

0.1
0.9
6%
5.50%
4%
1

117.41
124.46
131.93
139.84
148.23

New cost of equity

new cost of capital

11.500%
10.75%

Year
1
2
3
4
5
TV

EBIT(1-T)
Net capex Change in Working capital
265.51
14.84
117.41
281.44
15.73
124.46
298.33
16.67
131.93
316.23
17.67
139.84
335.20
18.74
148.23
351.96
64.78
130.94

FCFF
TV
PV
133.26
141.25
149.73
158.71
168.24 2717.351
156.25

119.42
113.43
107.75
102.35
1,667.47
2,110.41

1997 (IN $ MILLION)

4%
521.84
475
461
13046
36%
15%
10%
10%
10%
10%
5%

EBIT
Capex
Depreciation
Revenue
Tax rate
WC
Revenue growth rate
Net capex
Operating income
Growth rate for 5 years
Ter. G rate

0
1
2
3
4
5

1956.9
2152.59
2367.849
2604.634
2865.097
3151.607

Stable Growth
Debt
Equity

0.2
0.8

Rf
Rm-Rf
Kd(1-t)
Beta

6%
5.50%
4%
1

New cost of equity

new cost of capital

11.500%
10.00%

195.69
215.26
236.78
260.46
286.51

Year 0
Year 1
Year 2
Year 3
Year 4
Year 5

High Growth
Debt
Equity

0.2
0.8

Rf
Rm-Rf
Beta
Kd(1-t)

6%
5.50%
1.25
5%

Ke
WACC

12.88%
11.35%

Year
1
2
3
4
5
TV

EBIT(1-T) Net capex Change in Working capital

FCFF
TV
367.38
15.40
195.69
156.29
404.11
16.94
215.26
171.91
444.52
18.63
236.78
189.11
488.98
20.50
260.46
208.02
537.87
22.55
286.51
228.82 6584.62
564.77
77.96
157.58
329.23
Value of the Firm(optimally managed) 4531.59
Value of the Firm(status Quo) 2110.41
Value of Control 2421.17

PV
140.36
138.65
136.97
135.31
3,980.29
4,531.59

Year
1
2
3
4
5
TV

EBIT(1-T) Net capex Change in Working

FCFF capital
TV
2102.85
202.40
382.26 1518.19
2313.13
222.64
420.49 1670.01
2544.45
244.90
462.53 1837.01
2798.89
269.39
508.79 2020.71
3078.78
296.33
559.67 2222.78 56654.81
3232.72
92.16
307.82 2832.74
Value of Digital (optimally managed) 4,531.59
Value of Compaq (status quo) 38546.91
Value of combined firm 43078.50

PV
1,354.47
1,329.24
1,304.49
1,280.19
33,278.53
38,546.91

EBIT
Capex
Depreciation
Revenue
Tax rate
WC
Revenue growth rate
Net capex
Operating income
Growth rate for 5 years
Ter. G rate

Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
High Growth
Debt
Equity
Rf
Rm-Rf
Beta
Kd(1-t)
Ke
WACC
Stable Growth
Debt
Equity
Rf
Rm-Rf
Kd(1-t)
Beta
New cost of equity
new cost of capital

15%

1
2
3
4
5

0.1
0.9
6%
5.50%
1.25
5%
12.88%
12.09%

0.2
0.8
6%
5.50%
4%
1
11.500%
10.00%

1997 (IN $ MILLION)

2987
729
545
25484
36%
3822.60
10%
10%
10%
10%
5%

3822.60
4204.86
4625.346
5087.881
5596.669
6156.336

382.26
420.49
462.53
508.79
559.67

1997 (IN $ MILLION)

4%
522
2987
100
3609
475
461
729
545
1204
1006
13046
25484
38530
36%
15%
1956.9
15%
3822.6
10.5%
10.5%
10.5%
10.5%
5%

EBIT of Digital
EBIT of Compaq
Annual Dollar Savings
Total EBIT
Capex of Digital
Depreciation of Digital
Capex of Compaq
Depreciation of Compaq
Total Capex
Total Depreciation
Revenue of Digital
Revenue of Compaq
Total Revenue
Tax rate
WC of Digital
WC of Compaq
Revenue growth rate
Net capex
Operating income
Growth rate for 5 years
Ter. G rate

Changes in Working Capital

0
1
2
3
4
5

5779.5
6386.348
7056.914
7797.89
8616.668
9521.419

606.85
670.57
740.98
818.78
904.75

Year 0
Year 1
Year 2
Year 3
Year 4
Year 5

Current Operating margin

New Operating margin

9.11%
9.37%

Digital Unlevered Beta

Compaq Unlevered Beta

1.078
1.17

Digital Firm Value

Compaq Firm Value
Total Value

4.5 ($ bn)
38.6 ($ bn)
43.1 ($ bn)

Unlevered Beta

1.16

D/E Ratio of Combined firm

New Levered Beta

0.1364
1.26

High Growth
Rf
Rm-Rf
Beta
Kd(1-t)
Ke
Cost of Capital
Debt
Equity

6%
5.50%
1.26
5%
12.930%
11.98%
0.12
0.88
Stable Growth

Beat
Kd(1-t)
Ke
Cost Of Capital

1
4%
11.500%
10.00%

Year
1
2
3
4
5
TV

EBIT(1-T) Net capex

2552.28
2820.27
3116.40
3443.63
3805.21
3995.47

218.79
241.76
267.15
295.20
326.19
174.02

Change in Working capital

606.85
670.57
740.98
818.78
904.75
476.07
Value of combined firm (with synergy)
Value of combined firm ( without synergy)
Value of synergy
It will take 3 yrs to create the synergy
Therefore, PV of the synergy

FCFF
TV
PV
1726.65
1907.95
2108.28
2329.65
2574.26 66907.52
3345.38

ned firm (with synergy)

firm ( without synergy)
Value of synergy
s to create the synergy
fore, PV of the synergy

45510.32
43078.50
2431.82
1731.916

1,541.94
1,521.59
1,501.49
1,481.67
39,463.62
45,510.32