rate of savings. As part of rationalization of operations‚ some assets will be sold generating a positive cash flow of $20 million net of tax in years 1 and 2 and $10 million in year 3. The analyst judges that these costs savings are rather certain‚ reflecting a degree of risk consistent with the variability in the firm’s EBIT. Accordingly‚ the analyst decides to discount the cash flow at the firm’s cost of debt of 6%. The merger will expand revenues through cross-selling of products‚ efficient
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will be given a week before the exams * Free Cash Flow Technique * Question 1 Chapter 8 Financial Option * The Block-Scholes Option page 319 * Question 2 Earning Multiples * Excel Spreadsheet Chapter 13 QUESTION 1 20 marks QUESTION 2 Use multiples (Acquisition/Merger) 40 marks QUESTION 3 Case Study (What informs growth‚ what informs the return you are expecting) DO THE WALMART CASE AS AN EXERCISE To study cash flows Time value of money Ration Analysis Standard
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Advanced Corporate Finance Final Case: Roche 1 2 Reasons for Roche’s 100% ownership of Genentech Since Roche and Genentech both operate in the pharmaceutical industry‚ but still have their own specialty‚ they can benefit from a partnership. Roche owns a majority stake in Genentech since 1990 and since 2007‚ it owns 56% of Genentech. Genentech was founded in 1976‚ their focus lies on biotechnology in which they are the second largest firm of the world. Genentech had become an important
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trades and other payables + provisions (inclu NCL) Cash flow statement reports amount as - 6129 This includes the $714 CSR adj that we made in calculating NPAT (which doesn’t appear in the actual reported NPAT) So this figure needs to exclude the $714 otherwise we will double counting it The amount of decrease should be -6129 + 714 = -$5415 The 714 represents a loss that would reduce decrease in the payable that is a negative cash flow and reason why we making adjustment if we don’t then will
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additional finance requirements. It remains to be seen when AMT’s R&D and Sales force will hit the economies of scale from fixed cost perspective. 2. AMT is in need of $8 million at the end of year 1988 as can be seen from the calculation of free cash flow which is negative ~$8million. 3. From Mr. Winter standpoint the bank would not recommend a loan to AMT. They have a negative ROE and so are destroying value of the firm. Although AMT’s revenue is growing by a robust 30% and they have a niche
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Delta Beverage Group Delta Beverage is a bottler company which is an important part of the franchise system of PepsiCo‚ Inc. Over the years Delta Beverage has also become an important manufacturer of cans‚ bottles‚ PET and other packaging for other several brands. The concentrate and syrup for the soft drinks are bought from PepsiCo‚ where the prices are establishing annually by PepsiCo. Delta processes all the other raw materials which are needed to produce these soft drinks. One of the core
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Q1. If we want to do the stand-alone-valuation for Framedia at the end of 2005‚ we should calculate the free cash flow to firm after 2005 and the residual value of Framedia and then discount all the cash flows to the end of 2005. Because it’s stand-alone-valuation we should do‚ we need to value the whole firm and then compare the stand-alone-value with the synergistic value after the merger. So it’s the firm value we should compare with. We can get the effective tax rate by dividing the profit before
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United Parcel Service’s IPO Case Talking points Value of the Knot We calculated Free Cash Flow and the pre-money NPV based on the same asset beta as we can derive from FedEx’s equity beta. The NPV is 35.4 billion and share price should be $31.5 for the current 1‚124‚000 share outstanding. Book Building Price As the book building data suggest‚ if we choose under $65/share‚ demands for the new-issued stock exceed the issuing stocks. Because of that‚ we recommend a price between:
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Little Stone Company: Beta 1.5 Stock market risk premium 11% Risk free rate 3% Current interest rate on debt 15% Tax rate 33.3% Capital Structure 50% debt and 50% equity Shares outstanding 2.5 million Long-real growth rate 2% Long-term inflation rate 2% Debt outstanding $1‚500‚000 and excess cash $500‚000 Forecasted gross profit margin 25% Current year free cash flow (FCF) $2 million LSC’s 5-year forecasted FCF growth rates 10% next year‚
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the customer refuses to buy the product after the contract expires. Therefore Hansson needs to accurately calculate the cash flows related to the investment and account for the risk inherent in the investment before he can make decision on the expansion project. Excel Sheet Projections for Expansion Project Investment Appraisal for Expansion Project 2009-2018 Free Cash Flows‚ NPV‚ IRR‚ MIRR Calculation of Cost of Capital Riskfree Rate‚ Market Risk Premium‚ EquityBeta‚ Cost of Equity‚ Cost of Debt
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