1.Vonnegut Company and Heller Company are two identical firms that agree to merge. Both have revenues (R0) of $1,500, operating margin (m) of 15%, a tax rate (T) of 40%, investment rate (I) of 10%,...

1.Vonnegut Company and Heller Company are two identical firms that agree to merge. Both have revenues (R0) of $1,500, operating margin (m) of 15%, a tax rate (T) of 40%, investment rate (I) of 10%, growth rate (g) of 11%, 5 years of supernormal growth (n) followed by zero growth thereafter, and a 9% cost of capital (k). a. What are the values of the firms as stand-alone companies? b. If the combined firm increases its operating margin by 2%, revenues are combined, and the other value drivers remain unchanged, what is the value of the combined firm? 2.1 Table P2.1 uses Model 10-04 (from the companion Web site www.prenhall.com/weston) to calculate the premerger stand-alone values of Dow and Union Carbide. Dow had a higher net operating margin and a higher growth rate. Because of its higher credit rating it had a somewhat lower cost of capital. Analysts’ reports predicted that the combined operating margin would reflect the benefits of synergies in the total amount of $2 billion. They also predicted that the combined growth rate would raise Union Carbide’s growth rate toward the higher of Dow. In the combined column (Dow, the surviving company), of Table P2.1, are blanks for the operating income margins and growth rates for the initial period and the terminal period. Make your best estimate to fill in the blanks to calculate the values for the third column of the table.