Group No 5Lianne Paes-628Mandar Khanvilkar-630Marshaneil Sequeira-631Morvin Rodrigues-633Nestor Tauro-636

1997 (IN $ MILLION)EBITDA 3% 391.38Capex 475Depreciation 461Revenue 13046Tax rate 36%WC 15% 1956.90Revenue growth rate 6%Net capex 6%Operating income 6%Growth rate for 5 years 6%Ter. G rate 5%

Year 0 1956.90Year 1 1 2074.314 117.41Year 2 2 2198.773 124.46Year 3 3 2330.699 131.93Year 4 4 2470.541 139.84Year 5 5 2618.774 148.23

High GrowthDebt 0.1Equity 0.9Rf 6%Rm-Rf 5.50%Beta 1.15Kd(1-t) 5%Ke 12.33%WACC 11.59%

Stable GrowthDebt 0.1Equity 0.9Rf 6%Rm-Rf 5.50%Kd(1-t) 4%

Beta 1New cost of equity 11.500%new cost of capital 10.75%

Year EBIT(1-T) Net capex Change in Working capital1 265.51 14.84 117.412 281.44 15.73 124.463 298.33 16.67 131.934 316.23 17.67 139.845 335.20 18.74 148.23

TV 351.96 64.78 130.94

FCFF TV PV133.26 119.42 141.25 113.43 149.73 107.75 158.71 102.35 168.24 2717.351 1,667.47 156.25 2,110.41

1997 (IN $ MILLION)EBIT 4% 521.84 High GrowthCapex 475 Debt 0.2Depreciation 461 Equity 0.8Revenue 13046Tax rate 36% Rf 6%WC 15% Rm-Rf 5.50%Revenue growth rate 10% Beta 1.25Net capex 10% Kd(1-t) 5%Operating income 10%Growth rate for 5 years 10% Ke 12.88%Ter. G rate 5% WACC 11.35%

0 1956.9 Year 01 2152.59 195.69 Year 12 2367.849 215.26 Year 23 2604.634 236.78 Year 34 2865.097 260.46 Year 45 3151.607 286.51 Year 5

Stable GrowthDebt 0.2Equity 0.8

Rf 6%Rm-Rf 5.50%Kd(1-t) 4%Beta 1

New cost of equity 11.500%new cost of capital 10.00%

Year EBIT(1-T) Net capex Change in Working FCFF TV1 367.38 15.40 195.69 156.292 404.11 16.94 215.26 171.913 444.52 18.63 236.78 189.114 488.98 20.50 260.46 208.025 537.87 22.55 286.51 228.82 6584.62

TV 564.77 77.96 157.58 329.23

Value of the Firm(optimally managed) 4531.59Value of the Firm(status Quo) 2110.41

Value of Control 2421.17

PV140.36 138.65 136.97 135.31

3,980.29 4,531.59

Year EBIT(1-T) Net capex Change in FCFF TV1 2102.85 202.40 382.26 1518.192 2313.13 222.64 420.49 1670.013 2544.45 244.90 462.53 1837.014 2798.89 269.39 508.79 2020.715 3078.78 296.33 559.67 2222.78 56654.81

TV 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

PV1,354.47 1,329.24 1,304.49 1,280.19

33,278.53 38,546.91

1997 (IN $ MILLION)EBIT 2987Capex 729Depreciation 545Revenue 25484Tax rate 36%WC 15% 3822.60Revenue growth rate 10%Net capex 10%Operating income 10%Growth rate for 5 years 10%Ter. G rate 5%

Year 0 3822.60Year 1 1 4204.86 382.26Year 2 2 4625.346 420.49Year 3 3 5087.881 462.53Year 4 4 5596.669 508.79Year 5 5 6156.336 559.67

High GrowthDebt 0.1Equity 0.9Rf 6%Rm-Rf 5.50%Beta 1.25Kd(1-t) 5%Ke 12.88%WACC 12.09%

Stable GrowthDebt 0.2Equity 0.8Rf 6%Rm-Rf 5.50%Kd(1-t) 4%Beta 1New cost of equity 11.500%new cost of capital 10.00%

1997 (IN $ MILLION)EBIT of Digital 4% 522EBIT of Compaq 2987Annual Dollar Savings 100Total EBIT 3609Capex of Digital 475Depreciation of Digital 461Capex of Compaq 729Depreciation of Compaq 545Total Capex 1204Total Depreciation 1006Revenue of Digital 13046Revenue of Compaq 25484Total Revenue 38530Tax rate 36%WC of Digital 15% 1956.9WC of Compaq 15% 3822.6Revenue growth rate 10.5%Net capex 10.5%Operating income 10.5%Growth rate for 5 years 10.5%Ter. G rate 5%

Changes in Working Capital

0 5779.5 Year 01 6386.348 606.85 Year 12 7056.914 670.57 Year 23 7797.89 740.98 Year 34 8616.668 818.78 Year 45 9521.419 904.75 Year 5

Current Operating margin 9.11%New Operating margin 9.37%

Digital Unlevered Beta 1.078Compaq Unlevered Beta 1.17

Digital Firm Value 4.5 ($ bn)Compaq Firm Value 38.6 ($ bn)Total Value 43.1 ($ bn)

Unlevered Beta 1.16

D/E Ratio of Combined firm 0.1364

New Levered Beta 1.26

High GrowthRf 6%Rm-Rf 5.50%Beta 1.26Kd(1-t) 5%Ke 12.930%Cost of Capital 11.98%Debt 0.12Equity 0.88

Stable GrowthBeat 1Kd(1-t) 4%Ke 11.500%Cost Of Capital 10.00%

Year EBIT(1-T) Net capex Change in Working capital1 2552.28 218.79 606.852 2820.27 241.76 670.573 3116.40 267.15 740.984 3443.63 295.20 818.785 3805.21 326.19 904.75

TV 3995.47 174.02 476.07

Value of combined firm (with synergy)Value of combined firm ( without synergy)

Value of synergy

It will take 3 yrs to create the synergyTherefore, PV of the synergy

FCFF TV PV1726.65 1,541.94 1907.95 1,521.59 2108.28 1,501.49 2329.65 1,481.67 2574.26 66907.52 39,463.62 3345.38 45,510.32

Value of combined firm (with synergy) 45510.32Value of combined firm ( without synergy) 43078.50

Value of synergy 2431.82

1731.916It will take 3 yrs to create the synergy

Therefore, PV of the synergy