In this workout. We need to find the present value of synergies.

We've already found the synergies as a percentage of Target sales using past transactions and we found 5.7 to be the median of those past transactions.

We've applied that to White Wave sales and we've worked out that their synergies estimate per year should be 229.

We're going to be using those median figures as our guide.

We've also got a discount rate or WACC for the target of 7% But we're going to add a premium of 2%.

This is because the target's cash flows, which would normally have a WACC of 7% a reasonably predictable.

But our synergies this is going to be the first time we're ever going to see them. They are less predictable. So we're going to have a risk premium of 2% being added on.

So my synergies discount rates will be 9% I then got a tax rate of 25% and we've got a table underneath set up ready with our year counts.

I now need to put my synergy forecast in. Now remember we're going to be using this figure of around 229, what I'd like to do, I'd like to use a nice round figure rather than 229. I'd like to use something that the client might find a little bit more acceptable 230.

But I'm only going to put that into years four and five.

The reason for this is that I don't think we'll achieve that figure until the fourth year. So now we need to choose some figures for years one two, and three and that's a little bit harder.

Luckily though, if we get these numbers wrong, it won't have a huge impact on the present value figure.

So I'm going to choose as synergies forecast in the first year of negative 60. I think this is going to be costs associated with this cost cutting.

But then we'll get some cost savings of 100 going up to a hundred and seventy five.

I now need to find the post tax synergy forecast. So I'll multiply that by one minus the tax rate.

I'll lock onto that and then I can copy that to the rights.

I can then calculate my discount factor that's going to be one over one plus my discount rate, which I'll lock again.

To the power of the year that I'm in.

And I'll copy that to the right.

Now I can apply that discount factor to the post tax synergy forecast.

Copy that to the right.

And now the last figure I need is the terminal value.

Now normally I'd find the present value of the terminal values in the gordon growth model. However, we're going to assume that there is no growth here at all. So the formula I need is the present value of a perpetuity.

And that formula is just to take your future cash flow and then divide it by your discount rate. So there's no growth figures put in at all.

And that gets me to figure 1,916.7.

Now I can bring it all together. I'm going to sum up the present value of forecast synergies. So one, two, three, four, five.

Then I'm going to present value my terminal value. I take that multiplied by the year 5 discount factor.

And then sum up those two numbers and that gets me to a final figure of 1,6003.2.

If I was trying to work out the premium that I should pay for this company I should use this figure as a maximum.