# Comrail

Topics: Stock market, Stock, Norfolk Southern Railway Pages: 4 (1335 words) Published: September 10, 2013
rf| g| βfor CC| βfor NC| rm-rf| CAPM for CC| CAPM for NC| Share outstanding| tax| 0.0680 | 0.0300 | 1.3300 | 1.2300 | 0.0750 | 16.78%| 16.03%| 90,500,000| 0.35| Total gain in Operating imcome (in million)| 1997| 1998| 1999| 2000| 2001| Terminal value| CSX| 0| 240| 521| 730| 752| 5620.90 |

Norfolk Southern| 0| 231| 429| 660| 680| 5375.29 |
NPV(in million)| 1997| 1998| 1999| 2000| 2001| Terminal| Total| CSX| 0| 114.3997| 212.6677| 255.1742| 225.1033| 1682.557| 2489.902| Norfolk Southern| 0| 111.5378| 178.5319| 236.7287| 210.2153| 1661.717| 2398.731| Case 2 Memo

Team name: Leopard
Team member: Chia-Yu Liou, Tzu-Yu Liu, Haoxin Guan, Siqi Hu

1. What is the per share value of Conrail to Norfolk Southern? To CSX? What factors account for the difference? To find out the per share value of Conrail to Norfolk Southern and to CSX, first we use DCF to calculate the total gain in operating income which come from acquisition. We assume the 30-year U.S. Treasury rate (6.8% from exhibit 10) as the risk-free rate and the historical average market risk premium to be 7.5%. As for the beta, we use the average of the pre-merger betas of Conrail and CSX, which is 1.33 {(1.3+1.35)/2}. Also, for Conrail and CSX, the beta will be 1.23 {(1.3+1.15)/2}. From these data, we can calculate the discount rate by using CAPM. CAPM for Conrail and CSX= 6.8+1.33*7.5=16.78

CAPM for Conrail and Norfolk Southern = 6.8+1.23*7.5=16.03 Take CSX for example:
The terminal value can be projected in perpetuity growth method with g= 3% after year 5 and discount each year with r=16.78%. NPV=1-0.35*240(1.1678)2+1-0.35*521(1.1678)3+1-0.35*730(1.1678)4+1-0.35*752(1.1678)5+752*(1.03)0.1678-0.03*1-0.351.16785=\$ 2489.902 million If Conrail choose to merger with CSX, it financial project generates \$2489.902 million and on the other hand if Conrail merger with Norfolk Southern then it generates...