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In question one, we are told that the the takeover will be cost synergies of $150,000 will arise for the foreseeable future. My question is when valuing the “New company” why did we not find the perpetuity of this figure before finding the market value for the new firm? (the answer just used $150,000)?
Thanks
Yes!!!
Because we are using DCF technique while calculating MV of Nente Co…where as synergies are expected in combined firm and which is not valued on DCF basis..
If we were given CFs of combined firm and synergies then by DCF we should have put 150k in our format and discounted it as we find terminal value….
This is the reason i think……and followed the same while doing practice
Because we are doing EPS, not using FCF model. Perpetuity is only in FCF model.
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