$100 million purchase price funded by 100% debt. (This is before I did free cash flow forecast for # 9). It will provide the highest tax shield of $17.49 million for CPP. In addition‚ Pinkerton has the highest value of $107.34 million under this strategy. 7. Below is the balance sheet after CPP and Pinkerton acquisition. * CPP market value leverage ratio is 7.46% and book value leverage is 14.69% before acquisition. * After acquisition‚ with $75 million debts‚ the market value leverage
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Pinkerton Group Project Executive Overview The security guard services industry consisted of two segments: proprietary guards and contract guards. The historical growth was driven by companies realizing‚ that contracting guards allowed them gain operating flexibility instead of managing their own security personnel. In 1987 security guard services was a $10 billion industry growing at 6% a year. Due to the industry being very mature‚ fragmented‚ and price competitive there was an ongoing
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53458 14.53871 7.40854 7.778967 17.6 NPV WACC FINANCIAL BENEFIT INTEREST LOAN PAYMENT Rs. 84.69 14.97% Rs. 17.49 12.05492 100 8.91 5 13.91 Rs. 17.49 Rs. 17.49 4.59 0 0 Rs. 2.99 8.4645 5 13.4645 4.3605 1.2 0.792 8.019 5 13.019 4.131 1.5 0.99 7.5735 5 12.5735 3.9015 2 1.32 7.128 5 12.128 3.672 3 1.98 10.38693 cost of refinance 10.93542511 NPV CPP VALUE INC OP PRFT (CPP) NET OF TAX Rs. 13.38 NPV DEBT COVERAGE FCF (PINKERTON+CPP) CPP ORIGINAL TOTAL FCF(POST ACQ) DEBT SERVICE REQMT
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53 11 64 0 29 $ 308 275 32 17 15 3 51 54 11 65 1 29 $ 312 286 26 25 1 2 55 1 58 13 71 2 26 $ 368 343 25 25 1 63 1 63 15 79 5 23 $ 408 382 27 27 (0) 1 67 1 69 18 87 3 27 - - 30 30 28 27 31 Selected CPP Financial Data (in $Millions) 12/31/86 12/31/87 (E) Income from services Cost of services provided Gross Profit Operation expenses Operating Profit Interest expenses‚ net Amortization of goodwill Income before Tax Taxes Net Income Cash Accounts
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X. Weighted average cost of capital (WACC) The valuation of Abercrombie & Fitch Co. is based discounting future cash flows and economic profit‚ for that the weighted average cost of capital is needed. The WACC is the opportunity cost when investing in Abercrombie & Fitch Co. opposed to other investments with a similar risk. Investors want their return to excess the WACC before it can be considered a good investment; since people in general are risk averse‚ they want compensation for taking on risk
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9 Calculating WACC Mullineaux Corporation has a target capital structure of 60 percent common stock‚ 5 percent preferred stock‚ and a 35 percent debt. Its cost of equity is 12.5 percent‚ the cost of preferred stock is 5.5 percent‚ and the cost of debt is 7.2 percent. The relevant tax rate is 35 percent. a. What is Mullineaux’s WACC? b. The company president has approached you about Mullineax’s capital structure. He wants to know why the company doesn’t use more preferred stock financing
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at 4.5% * JP Morgan has issued an estimate for Expected Market Return at 8.5% * Euribor is 2% * Before tax cost of debt = 5% * Tax rate = 30% Please calculate the weighted average cost of capital (WACC) for this firm. 2. You are now asked to calculate the WACC for a toothpaste manufacturer with the following data: * Average share price for last 6 months = €34/ share * Current year’s dividend = €3/ share * Applicable growth rate = 3% * Tax rate =
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2. What is the maximum price they could expect to pay Monmouth‚ based on an analysis of valuation using discounted cash flow‚ calculation of WACC and terminal value determination? 2. Based on the DCF valuation and using a WACC of 8.25% (the beta assumed to be 1‚ the average beta of comparable firms and the coupon rate to be 7.96%‚ the rate for BB rated companies) and a growth rate of 5.5%. The fair price is $40.4 per share for Robertson‚ lower than the $50 offered by Simmons to sell their
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CAPITAL BUDGETING Cost of Capital Evaluating Cash Flows Payback‚ discounted payback NPV IRR‚ MIRR The Cost of Capital • Cost of Capital Components – Debt – Common Equity • WACC Should we focus on historical (embedded) costs or new (marginal) costs? The cost of capital is used primarily to make decisions which involve raising and investing new capital. So‚ we should focus on marginal costs. What types of long-term capital do organizations use? nLong-term debt nEquity Weighted
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as the discount rate in net present value (NPV) project appraisal techniques.1 The weighted-average cost of capital (WACC) represents the overall cost of capital for a company‚ including the costs of equity and cost of debt‚ weighted according to the proportion of each source of finance within the business. In easy words WACC measures a company’s cost to borrow money. The WACC equation is the cost of each capital component multiplied by its proportional weight and then summing: Where: Re
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