Cape Chemical

TIPs for Student Cases â€“ FIN 4422, Fall 2016In every case, always ask yourself: â€śWhat are the risk factors?â€ťCape ChemicalsDo cash flow forecasts for 2008-2011Inflation rate = 0.02CeÂ for 2008 is given as $1.2 million; shortage inventory given as $0.8 millionSales target for 2008 is $78 millionAssume principal payments are 10% of previous gross debt & interest rate =0.11Ignore section called â€śThe Taskâ€ťStrong Tie LtdDo cash flow forecasts for 2009-2012Inflation rate = 0.02Note the restatement of balance sheets in EXCEL financialsto find c-factor, modify method where c = Ce Ă· (0.25*S); assume that the capacity increase will be sufficient until another investment is made in 2012 for positive growth casesDonâ€™t get hung up on the restrictive covenants in the paragraph called â€śFINANCING;â€ť STL has more important problemsBoston BeerThe IPO is for only 20.8% of the total equity valueDo valuation of several scenarios, finding the amount raised by an IPODo not be sidetracked by potential price per share; before the IPO, BB can change the number of shares by split or reverse splitRemember that IPOs suffer about a 20% underpricing and 7.5% flotation cost — Â both reduce the proceeds of the issuanceIn determining the discount rate for the present values, consider the data from similar traded companiesInflation rate = 0.04Continental CarriersYour numerical analysis should be along the lines of Tables 9.2-9.3A good scenario format is: [a] one optimistic operating scenario with CATO per share under SEO, and then under debt, and then under convertible exercised plus [b] one pessimistic operating scenario with CATO per share under SEO, and then under debt, and then under convertible with no exercise.Use the supplemental financial statements provided by your beloved professorReplace the nonsense about a preferred stock issuance with a potential convertible debt issuance at 7.5% coupon. Â Each $1,000 bond would have a conversion ratio of 42 shares. Â Principal payment, if needed, would be a balloon in 15 years. Â The first possible call would be in year 1 at a call price of $1075 â€” the call premium decreases by $5 per year.What is the primary source of â€śdilutionâ€ť in the common stock financing sub-case?For this kind of analysis, set all operating costs as variableInflation rate = 0.05Ocean CarriersNPV analyses of the one new shipchange the price to $30 million to be made with a downpayment of $3 million, a $3 million payment in year 1 and the remainder in year 2.Income tax rate = 0.35OCIâ€™s WACC = 0.09. Use this as a required rate of return [that is, a discount rate] for risky cash flows.Contractual cash flows are less uncertain. Â Their required rate of return is 0.06. The risk-free rate is 0.04.Comment on the 15-year life policy.Use the 3-discount rate methodÂ Radio OneNPV analyses of purchasing stations from Clear ChannelData in Exhibits 6 & 7 are dollars; data in Exhibit 9 are $1,000sCase has conflicting data for non-cash charges; set yours as 1/14 of the purchase price that you determineAssume t = 0.41Use Î˛assetÂ to find k; add risk premium for potential financial distress [examine your heart]; this substitutes for a WACCOK to use continuing valueOK to use the bottom up methodIssue: unknown purchase price, and actual non-cash charges will be contingent on purchase priceEach new station will need start-up transactions cash plus spontaneous wcGiven specifics of this case, prepaid expenses and accruals are spontaneousWhen you hack a c-factor, based on all fixed assets (tangible and intangible), be ready for a shockSeagate TechnologyValuation of new Seagate based on Exhibit 8 [note cash transfer]; you should have another column where the growth rate is low and sustainableWork with historical statements to see if new management and strategies can unlock Seagate value; valuation based on this scenarioDo some quick and dirty numerical work to see how much debt the new Seagate can bearExhibit 8 gives EBITA, which is really EBITDANo, EBITA is not EBIT; itâ€™s EBITDAyou might need to go 2007 for a low, sustainable g and continuing valueInflation rate = 0.02Again, EBITA is EBITDAChang Dental ClinicAssume t=0.30Use valuation for equity value [no need for price per share]Inflation rate = 0.03Assume lease obligations have a PV of about $300,000WACC for private transactions is always difficult. Look at â€śReturn on Assetsâ€ť in one of the exhibitsCheck to see if Miller can service his financingVictoria Chemicals (A)the product is a commodity. Think hard about what that means in terms of capacity utilization, tons sold in response to price per ton changes and erosionNPV problem â€” Exhibit 2 calls NPV “DCF”The inflation washout assumption is wrong; inflate both selling price and production cost at 2.0%convert Exhibit 2 to â€śformatâ€ť tab of the â€śfinancialsâ€ťdecide and discuss which cash flows are truly incrementalas consultant to management, tell why you include or exclude â€śoverheadâ€ť from the NPV [that itâ€™s a company rule is not a good reason]gross margin = 13.9% means the profit on a ton sold for $611, for example, is 611*0.139 = 84.93 and the production cost for that ton is 611*(1-0.139) = 526.07; if market price changes, production cost per ton remains ÂŁ526.07.Tank cars would cost ÂŁ3 million in year 2, depreciated straight line for 5 yearsRisk-free rate = 0.015, for D*t stream for new assetsVictoria Chemicals (B)the product is a commodity. Think hard about what that means in terms of capacity utilization, tons sold in response to price per ton changes and erosionNPV problem â€” Exhibit 1 calls NPV “DCF;”The inflation washout assumption is wrong; inflate both selling price and production cost at 2.0%; the proper discount rate for risky cash flows is 10%convert Exhibit 1 to â€śformatâ€ť tab of the â€śfinancialsâ€ťÂ as consultant to management, tell why you include or exclude â€śoverheadâ€ť from the NPV [that itâ€™s a company rule is not a good reason]is the comparison to case (A) truly valid?for comparison purposes, assume that NPV for (A) = ÂŁ10.45gross margin = 11.6% means the profit on a ton sold for $611, for example, is 611*0.116 = 70.88 and the production cost for that ton is 611*(1-0.116) = 540.12; if market price changes, production cost per ton remains ÂŁ540.12.assume the staged capital investment is essentially a contract, discounted at 6%Risk-free rate = 0.015, contract rate = 0.06Use 3-discount rate method. See â€śformatâ€ť tab on â€śfinancialsâ€ť fileAurora : Douglas Dynamicstwo valuations of Douglas Dynamics with WACC = 12.34%estimate the value Aurora should offer for DDassume an LOB by Aurora using debt for 80% to 90% of valueinterest rate on junky debt at 9.5%two corresponding DD cash flow forecastsdonâ€™t try to put valuation and CF forecast on the same spreadsheet inflation rate = 0.03income tax rate = 0.41 [0.35 federal & 0.06 state]can Aurora count on DD to service the debt?

# Essay About 2008-2011Inflation Rate And Cape Chemicalsdo Cash Flow Forecasts

Essay, Pages 1 (1045 words)

Latest Update: May 31, 2021

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