should Signal decide to approve the acquisition of the Collinsville plant at the price and on the terms proposed in the case As per an agreement with the government‚ American Chemical Corporation needed to sell the Collinsville plant after the acquisition of Universal Paper Corporation‚ or it be in violation of the anti-trust law. In the case‚ Signal agrees to buy the entire assets of the Collinsville plant at the price of $12 million. The key to solving this case is the valuation of the Collinsville
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FAIR VALUE MEASUREMENT 1. The meaning of fair value Fair value is the price that would be received from the sell of an asset or will be paid to transfer a liability in an orderly transaction between the market participants and the measurement date [IFRS‚ 13 – A501]. However in accounting and economics‚ fair value is the rational and unbiased estimate of a possible market price of a good‚ service or an asset. Fair value takes into account many objectives and subjective factors such as: Objective
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capacity (current full capacity will be reached in 2014) for $60 million and generate additional sales of 20% base sales in 2014‚ 30% in 2015‚ and 40% thereafter. The two companies tentatively agreed on a cash offer of $265 million. However‚ a discounted cash flow (DCF) analysis of the base acquisition and option will be performed along with a strategic and sensitivity analysis to help Sterling determine the value of the acquisition‚ the expansion option‚ and in combination. Sterling must ultimately
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38% return on capital in the last fiscal period‚ projects a company that is at an outset to yeild returns in comparison to its industry peers in the retail sector. The average industry return on capital calculated for the last 5 years is at 30%. Price Multiples: MK trades at high PE and PTB multiples in comparison to its industry peers. The PE and PTB observed as of the last fiscal year was 36 and 13.71 as opposed to the industry averages of 17.13 and 5.77. Trading Commentary: From the period‚
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"Component of an entity" describes operations and cash flows that can be clearly distinguished from the reminder of the entity‚ both operationally and for financially reporting purposes. A component of an entity may be an operating segment (as defined in FAS 131)‚ a reporting unit (as defined in FAS 142). From the information given by the case‚ the cruise ship has its own identifiable cash flows that are largely independent of the cash flows of other asset groups. Therefore‚ each cruise ship can
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Guidance Questions BW/IP 1. Was Borg-Warner’s Industrial Products Group a good candidate for a leveraged buyout in 1987? Evaluate the price paid and the structure of the deal that closed in May 1987. Are you optimistic about BW/IP’s prospects? 2. Do you favor the proposed acquisition of UCP? What are the primary sources of value in such a transaction? Is the proposed price reasonable? 3. How do the various features of the BW/IP buyout affect the company’s decisions about long-horizon opportunities such
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what GAAP provides etc.‚) Treasurer Responsible for Liquidity management (very important function)‚ Risk Management‚ More focus on financial statements‚ follows leading practices & responsible for the future performance of company (projects cash flows) Treasurer works/ forecasts the events regularly (daily / weekly) – focus – Balance sheet & future capital structure‚ capital expenditure etc.‚ Treasurer concentrates more on cash availability focus – i.e. how to bring in the required cash etc‚ Therefore
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cost-volume-profit analysis (break-even point‚ margin of safety‚ C/S ratio‚ profit-volume ratio)‚ assumptions and limitations of CVP analysis 12. Decision making – Relevant and irrelevant costs‚ make or buy decisions‚ segmental profitability‚ selling price decisions‚ limiting factors Controlling and Internal Auditing 1. Customer satisfaction and its supporters in controlling – key success factors; continuous improvement; total value chain analysis;
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simple and straightforward pair of financial spreadsheets that can facilitate‚ streamline‚ and perhaps even standardize the capital budgeting process. The IAT evaluates the attractiveness of a potential investment by analyzing its associated cash flows [i.e. inflows and outflows]. A user need only enter a few key variables regarding the investment and the spreadsheet automatically analyzes its attractiveness. Three traditional investment appraisal methods are used by the IAT. They include:
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Asset Pricing (CAPM) or Discounted Cash Flows (DCFM) Model. The organization will have to compare and contrast the Capital Asset Pricing Model with the Discounted Cash Flows Model. The skill of comparing and contrasting financial options will help evaluate and organize the debt/equity mix and dividend policy. The organization must then decide what type of long-term finance alternatives will most likely benefit. Capital Asset Pricing Model and the Discounted Cash Flows Model Capital
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