The following are the details where, Northrop has announced to acquire Grumman on August 22,

2017
Northrop Grumman
Revenues $4400 $3125
COGS without depreciation 87.5% 89%
Depreciation $200 $74
Tax Rate 35% 35%
Working capital 10%of revenue 10%of revenue
Market value of equity
(Before the announcement) $2000 $1300
Market value of Debt $160 $250
Equity Beta 1.2 0.90

Both the firms are expected to grow 5% a year. Capital spending is expected to be
offset by depreciation. Both firms are rated BBB, with an interest rate on their debt of
8.5%. The Treasury bond rate is 7%. The market risk premium is 6%. Outstanding
stocks of each firm are 100. After the merger, Grumman will get 1.5 stock of Northrop.

As a result of the merger, the firm is expected to growth by 7%. The combined firm is
expected to have a cost of goods sold only 86% of the total revenues. The combined
firm does not plan to borrow additional debt.
 What is total value of deal and the acquisition premium?

 What is the shareholder value added for the Northrop?

 What could be the motivation of buying the target, excluding the synergy?

 What should be the maximum price can be paid to the target

 What would be the expected EPS after the deal?