All the participants are requested to follow the following formulae and assumptions for the purpose of acquisition

valuation. Some Useful Formulae 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) Debt-Equity Ratio= Total Debt of the firm/ Value of Equity Debt-Capital Ratio= Total Debt of the firm/ Total Capital Invested in the firm Total Capital= Equity + Debt Cost of Equity = Risk-free Return + Levered beta * ( Expected Market Return Risk-free Return ) Levered Beta = Unlevered Beta *( 1 + {(1- Tax rate) *(Market Debt-Equity Ratio)}) WACC, Weighted average cost of capital = (Cost of Equity * (1 - Debt-Capital Ratio)) + (Cost of Debt * (1- tax rate) * Debt-Capital Ratio) Unlevered Beta of combined Firm = [Unlevered beta of Firm A * (Value of Firm A/Value of firms A & B)] + [Unlevered beta of Firm B * (Market Value of Firm B/ Market Value of firms A & B)] Value of Firm = Free Flow of Cash to Firm ( FCFF) / (Discount Rate, WACC Growth Rate) (FFCF assumed to be a constant growth perpetuity) Value of Synergy = Value of Combined Firm A & B Sum of Values of Firm A and Firm B For acquisition purpose, levered beta of the new firm cannot be found by simply adding the two levered beta. First calculate the combined unlevered beta and then the new levered beta

Assumptions for Valuation 1) 2) 3) 4) 5) 6) Tax Rate = 30% Risk Free rate of return = 7% Expected Market Rate of Return = 18% The acquirer company has sufficient cash for acquisition and there is no increase in debt The Cost of Debt for Acquirer company remains the same after acquisition This is a case of 100% acquisition and the acquirer company takes over the entire debt of the target company. 7) For valuation purpose, Debt/Equity Ratio is computed on the basis of market values. 8) There will be no change in growth rate of acquirer firm 9) After acquisition process, the new firms FCFF will be the sum of their individual FCFFs