Chapter 19 Valuation and Financial Modeling: A Case Study 19-1. You would like to compare Ideko’s profitability to its competitors’ profitability using the EBITDA/sales multiple. Given Ideko’s current sales of $75 million‚ use the information in Table 19.2 to compute a range of EBITDA for Ideko assuming it is run as profitably as its competitors. Ideko’s 2005 sales are $75 million. Find the highest and lowest EBITDA values across all three firms and the industry as a whole: EBITDA/Sales (%) EBITDA
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Equity-Beta is the covariance of the stock-return with the market-return 1.2 Betas Non Investment Grade (< BBB) The Equity-Beta can be analyzed as follows: [pic] The Equity-Beta is a function of the risk of a firm’s assets (operating risk) and the amount of financial leverage. [pic] An Asset-Beta (= unlevered Beta) reflects a firm’s operating risks without the effects of leverage. The Debt-Beta is the covariance of a firm’s debt with the market. A relevered Beta is the Equity-Beta
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on 10 year government bonds. A risk premium of 7.76% or the average returns of arithmetic averages of all long term‚ high grade corporate bonds was used for the WACC. To unlever the equity beta of 1.11 for Marriott the current debt percentage of 41% was used as shown in their capital structure. The relevered beta was calculated using 60% debt from the target capital structure. Cost of debt was calculated by multiplying the cost of fixed rate debt by fraction of debt at the fixed rate and adding it
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Harris Seafood Answer the following questions a. Should Harris Seafoods enter the shrimp processing business by building the new plant? Please assume the firm will be unable to use the Industrial Revenue Bond financing mentioned at the end of the case (we will return to this topic in a later case). Yes‚ I think that this company should build a new plant that allows them to grow in the industry‚ even if they are unable to use the Industrial Revenue Bond‚ they will have other financing alternatives
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BUS 3303 Finance Course review Ale Previtero AGENDA 1. Overview of valuation cases 2. WACC • Cost of equity‚ choosing beta‚ choosing weights‚ when to use premium. 3. Valuation using Discounted Cash Flow (DCF) • Key assumptions‚ Terminal Value‚ sensitivity 4. Valuation using multiples • Key points‚ pros & cons‚ choosing comparable firms • Which multiple? Which year? Example. 5. Financing an Acquisition • Determine price. Financing. Making a decision. 6. Final exam
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A project report on INTER COMPANY ANALYSIS Analysis of Pharmaceutical Industry in the Indian environment and comparative analysis among Ranbaxy Laboratories Ltd. and Cipla Ltd. Under the guidance of Prof P. Madhavan Visiting Professor‚ IIM Rohtak Undertaken by Ashwani Kumar Atif Aslam Dhiraj Rishiraj Sisodiya Shashi Singh pgp03.016 pgp03.017 pgp03.019 pgp03.054 pgp03.053 This project report is submitted as a partial requirement for the fulfilment of the Business Analysis and Valuation
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= Increase in assets – increase in liabilities – addition to retained earnings = $750‚000 - $135‚000 - $331‚200 =$283‚800 Answer: $283‚800 Chapter 15 problem 15-3‚ p. 621 Ethier Enterprise has an unlevered beta of 1.0. Ethier is financed with 50% debt and has a levered beta of 1.6. if the risk-free rate is 5.5% and the market risk premium is 6%‚ how much is the additional premium that Ethier’s shareholders require to be compensated for financial risk? If the company had no debt
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authority. The No-Tax Case βEquity = βAsset (1+ Debt/Equity) The Corporate Tax Case βEquity = (1+ (1 - t c) Debt/Equity) βUnlevered Firm Unlevered Beta (Equity/Equity + (1-tc) X Debt) βEquity = βUnlevered Firm Discount Rate RS = RF + β x [RM - RF] Levered Beta βEquity = (1+ (1 - t c) Debt/Equity) βUnlevered Firm Discount Rate RS = RF + β x [RM -
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1. Is Mercury a good target for AGI? Discuss strategic fit of brands‚ products‚ customers‚ and distribution. Identify specific sources of value. Discuss AGI’s strengths/weaknesses compared with other bidders. Mercury AGI Brands Acquire an iconoclastic nonconformist image that trying to exploit by adding a line of active casual footwear. Associated with a lifestyle that was prosperous‚ active and fashion-conscious. products Main on men’s athletic footwear‚ and cover the athletic and casual footwear
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flow $1 $3 $3 $7 Unlevered horizon value 75 Tax shield 1 1 2 3 Horizon value of tax shield 32 Assume that all cash flows occur at the end of the year. SGP is currently financed with 30% debt at a rate of 10%. The acquisition would be made immediately‚ and if it is undertaken‚ SGP would retain its current $15 million of debt and issue enough new debt to continue at the 30% target level. The interest rate would remain the same. SGP’s pre-merger beta is 2.0‚ and its post-merger
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