The first concern for executives and stockholders of AT&T is to determine how the acquisition of Kmart will affect them. To establish the value of the integrated company, we can determine the three basic components of firm valuation. First, value each of the firm independently, combined firm independently by adding financial data and weight appropriately, and then adjust combined with the synergy value included. Free cash flow can be calculated by determining the operating cash and subtracting the capital expenditures. By using the optimal capital structure method, we have found that the NPV for AT&T is at $12,799,000 and for Kmart, $11,587,000,000. The two companies combined without synergy is $24,386,000,000. With synergy included, the overall PV totals $25,496,000,000 (all figures are taken from the annual report from both Kmart and AT&T 2002). This overall NPV value and the debt ratio mirrors closely what their optimal capital structure should be (refer to table B). Additional supporting financial data including the book value, diluted price per share and the like are listed on Table A . Overall, their total revenue would increase 27% and their total liabilities increase at 20%. Through the process of acquisition, AT&T needs to focus on three key issues: planning, evaluating, and negotiating.