Phantom Computing and Ghostly Notebooks, formerly competitors in the computing industry, have agreed to merge. Phantoms management is fairly certain that the projected cost synergiesmostly to come from layoffs and restructuringare achievable. It is less certain about the achievability of the revenue enhancements, which are expected to come from greater market power and from cross-selling the products and services of both firms. Management estimates that the net present value (NPV) of revenue synergies, discounted at a WACC of 10 percent, should be worth at least $1.2 billion in order to ensure that the deal is value enhancing. Based on the following information, how much should the annual revenue enhancements (in constant dollars) be in order to achieve the desired NPV? (15%)

Expected inflation rate

2%

Growth rate of FCF (nominal), in perpetuity

3%

Discount rate

10%

Ongoing investment revenue (year 1+)

2%

Operating cost revenues

90%

Tax rate

38%

2. Phantom Computing and Ghostly Notebooks, formerly competitors in the computing

industry, have agreed to merge. Phantoms management is fairly certain that the projected cost synergiesmostly to come from layoffs and restructuringare achievable. It is less certain about the achievability of the revenue enhancements, which are expected to come from greater market power and from cross-selling the products and services of both firms.

Management estimates that the net present value (NPV) of revenue synergies, discounted at a WACC of 10 percent, should be worth at least $1.2 billion in order to ensure that the deal is value enhancing.

Based on the following information, how much should the annual revenue enhancements

(in constant dollars) be in order to achieve the desired NPV?

Expected inflation rate

2%

Growth rate of FCF (nominal), in perpetuity

3%

Discount rate

10%

Ongoing investment revenue (year 1+)

2%

Operating cost revenues

90%

Tax rate

38%

2. Phantom Computing and Ghostly Notebooks, formerly competitors in the computing industry, have agreed to merge. Phantom's management is fairly certain that the projected cost synergies-mostly to come from layoffs and restructuring-are achievable. It is less certain about the achievability of the revenue enhancements, which are expected to come from greater market power and from cross-selling the products and services of both firms Management estimates that the net present value (NPV) of revenue synergies, discounted at a WACC of 10 percent, should be worth at least $1.2 billion in order to ensure that the deal is value enhancing Based on the following information, how much should the annual revenue enhancements (in constant dollars) be in order to achieve the desired NPV? (15%) 2% 3% 10% Expected inflation rate Growth rate of FCF (nominal), in perpetuity Discount rate Ongoing investment revenue (year 1+) Operating cost revenues Tax rate 2% 90% 38%