In April 1994 Novell Inc. announced its plan to acquire WordPerfect Corporation

In April 1994
Novell Inc. announced its plan to acquire WordPerfect Corporation for$1.4billion.Atthetimeoftheacquisitiontherelevantinformationaboutthetwo
companies was as follows:NovellWordPerfectRevenues$1200.00$600.00Costof Goods
Sold (w/o Depreciation)57.00%75.00%Depreciation$42.00$25.00Tax Rate35.00%$25.00%CapitalSpending$75.00$40.00WorkingCapital(as%ofRevenue)40.00%30.00%Beta1.451.25ExpectedGrowth
Rate in Revenues/EBIT25.00%15.00%ExpectedPeriod
of High Growth10years10yearsGrowthrateAfterHigh-GrowthPeriod6.00%6.00%BetaAfterHigh-Growthperiod1.101.10Capital
spending will be offset by depreciation after the high-growth period. Neither
firm has any debt outstanding. The treasury bond rate is 7%.a.
Estimate the value of Novell operating independently.b.
Estimate the value of WordPerfect operating independently. c. Estimate the
value of the combined firm with no synergy.d.
As a result of the merger the combined firm is expected to grow 24% a year for
the high-growth period. Estimate the value of the combined firm with the higher
growth.e.
Whatis
thesynergyworth?
Whatisthe
maximumpriceNovell
canpayfor WordPerfect?