For a single read-only memory implementing both the next-state and output equations, the address has four request bits plus three present-state bits. Each word contains three next-state bits and four grant bits. HenceThree D flip-flops store the state outside this combinational ROM. This is the direct truth-table implementation for the encoding above. A smaller factored implementation exploits the independence of the next-state equations from : a next-state ROM and an output ROM use stored bits in total, or the output decoder can be ordinary logic. These are different implementation organizations, not different state counts.
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