AirThread using the information provided in the case. Estimate a terminal value considering both the GG model and an exit EBITDA approach. Explain how you calculated g for the GGM. Also explain your final choice of terminal value. Develop a WACC for the acquisition. Assume an industry average D/E ratio. Do not use a private company discount as discussed on page 7. Calculate the value of Airthread operating assets based on the above with and without synergies. Add the value of excess cash
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by the required return on debt. Finally‚ we calculated the terminal value of cash flows by assuming a constant 4.14% growth rate in perpetuity and a constant D/E ratio for the years after 1984. Thus‚ these cash flows were initially discounted under WACC-ME. From there‚ we factored in prior debt and cash that Congoleum had generated to calculate the total equity value of the firm after the LBO had taken place. Background Congoleum is a firm active in three product market segments: home furnishings
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Summary: A note on Valuing Companies in Corporate Restructuring The article is a note that describes how to apply the Discounted Cash Flow method of Company Valuation in companies undergoing corporate restructuring. The concept is based on the change in shareholders wealth as a direct result of the change in the firm’s value- which depends on multiple factors including corporate restructuring. The note describes in details about the technical aspects of the DCF method. First it defines the DCF
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Chapter #21: Valuing Options Problems: #1‚ 5‚ 6‚ 12 Chapter #19: Financing and Valuation 7. a. 12%‚ of course. b. rE = .12 + (.12 - .075)(30/70) = .139‚ WACC = .075(1 - .35)(.30) + .139(.70) = .112‚ or 11.2%. 8. a. Base-case NPV = -1‚000 + 1200/1.20 = 0 b. PV tax shield = (.35 X .1 X .3(1000))/1.1 = 9.55. APV = 0 + 9.55 = $9.55 17.
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2012‚ the D/E ratio of AirThread would change continuously until the bullet payment is paid‚ so we expect to use APV valutation method from 2008 to 2012‚ since it is more efficient to adjust the PV of FCF than to figure out the annual WACC. From 2013‚ the D/E ratio of AirThread would be in line with the industry‚ indicating the company will rebalance its D/E ratio‚ so we expect to use WACC method from then on to value AirThread. 2. Before we calculate the discount rate‚ we need to make the following
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NICHOLAS LANDRY WILL MACHADO JO WEN JON WIKSTROM Van Horn’s Storied Past •National Convenience Stores • top 20 in U.S. in size • 725 stores in 6 cities: Houston‚ San Antonio‚ Dallas Ft. Worth‚ Austin‚ Los Angeles‚ Atlanta • gas‚ lottery‚ alcohol‚ & other high inventory turnover items • customers stop in for a few items and want fast service •President & CEO Pete Van Horn Strategy • superior quality products • remodel stores according to 3 demographics • eateries • value pricing
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DCF methods applied ...............................................................................................9 3.1 .. WACC approach..................................................................................................9 The circularity problem...................................................................................................10 APV Adjusted Present Value Approach .............................................................11 Equity approach..................
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Question 1: Is Congoleum a good LBO candidate? In other words‚ does this company have a lot of debt capacity? To judge if a company is a good LBO candidate the following are very important factors: low levels of debt in the target‚ stable cash flows‚ excess cash on-hand‚ assets that can be used as collateral to raise debt and no major capital requirements to keep the business running on an on-going basis. Congoleum is an ideal LBO candidate because: 1. Low level of debt – estimated long term debt
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the expected return on debt is 6% with market value weight of 1/3. Therefore the firm’s pre-transaction WACC is 12% WACC (pre-transaction) = 2/3 * 15% + 1/3 * 6% = 10% + 2% = 12% a) (4 points) After the transaction GP will be all equity financed. The firm’s cost of equity the equals the WACC. As there are no taxes the firm’s WACC is independent of its capital structure and remains at 12%. WACC (post-transaction) = 12% = rE‚U * 1/1 => rE‚U = 12% b) (4 Points) In this case the debt-to-value ratio
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The idea of a jumbo airliner being capable of seating over 500 people almost seemed unreal. That is‚ until Airbus came along. This idea for the jumbo plane started as a joint venture with Boeing‚ but after it started Boeing backed out because of high costs and speculation of demand. Airbus pushed along and in 1999‚ they completed to rough draft of this plane. The problem with this plane that was obvious was first the overall cost of the plane. It was estimated to cost about 13 billion to launch.
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