Mercury Athletic Footwear Case Analysis
Mercury Athletic Footwear: Valuing the Opportunity
Terran Knox
Measurements II MBA-634
Northwood University DEVOS Program
Dr. Adam Guerrero
4 March, 2015
Problem Statement
Mercury Athletic is the footwear division of West Coast Fashions (WCF), a designer and marketer of men’s and women’s apparel. Due to unspectacular financial reports, the division was going to be sold. John Liedtke, the head of business development for Active Gear, Inc., (AGI) looked to acquire Mercury from WCF, believing that the purchase would double their revenue and provide greater leverage with manufacturers and distributors. Would Liedtke’s evaluation of Mercury prove that the future benefits of the acquisition will exceed the present value of the company? Analysis While Mercury Athletics was an owned subsidiary of WCF, they were allowed to operate with a rather large amount of autonomy. They maintained their own financial statements, databases, …show more content…
If the discount rate is was lowered to 9% with same growth rate of 3%, the PV TV would be $329,629m. The TV would be $507,175m, resulting in a difference of $177,546 and a closeout loss of $152,083m. That is a substantial loss at the end of the five-year period. If the growth rates were raised to 4% and the discount rate taken up to 13%, the TV for Mercury in 2011 would be $341,400m. The PV TV would be only $185,298m resulting in a difference of $156,298 and an end loss of $29,196m. This is the best case scenario when utilizing the data in the WACC spreadsheet below. Finally, in a worst case projection, if the growth rate were at 4% and the discount rate at 9%, the TV and TV would be equal to $614,519 and PV TV at $399,395m. There would be a difference of $215,123m in the TV and the PV TV. The end loss would be $184,271m. This would probably a difficult number to take up to the board and AGI
Terran Knox
Measurements II MBA-634
Northwood University DEVOS Program
Dr. Adam Guerrero
4 March, 2015
Problem Statement
Mercury Athletic is the footwear division of West Coast Fashions (WCF), a designer and marketer of men’s and women’s apparel. Due to unspectacular financial reports, the division was going to be sold. John Liedtke, the head of business development for Active Gear, Inc., (AGI) looked to acquire Mercury from WCF, believing that the purchase would double their revenue and provide greater leverage with manufacturers and distributors. Would Liedtke’s evaluation of Mercury prove that the future benefits of the acquisition will exceed the present value of the company? Analysis While Mercury Athletics was an owned subsidiary of WCF, they were allowed to operate with a rather large amount of autonomy. They maintained their own financial statements, databases, …show more content…
If the discount rate is was lowered to 9% with same growth rate of 3%, the PV TV would be $329,629m. The TV would be $507,175m, resulting in a difference of $177,546 and a closeout loss of $152,083m. That is a substantial loss at the end of the five-year period. If the growth rates were raised to 4% and the discount rate taken up to 13%, the TV for Mercury in 2011 would be $341,400m. The PV TV would be only $185,298m resulting in a difference of $156,298 and an end loss of $29,196m. This is the best case scenario when utilizing the data in the WACC spreadsheet below. Finally, in a worst case projection, if the growth rate were at 4% and the discount rate at 9%, the TV and TV would be equal to $614,519 and PV TV at $399,395m. There would be a difference of $215,123m in the TV and the PV TV. The end loss would be $184,271m. This would probably a difficult number to take up to the board and AGI