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Category > Accounting Posted 22 Dec 2017 My Price 10.00

Valuation analysis of a strategic merger & acquisition - Mini-case

Problem 9-12

Toy Co. Enterprise DCF Valuation
Valuation analysis of a strategic merger & acquisition - Mini-case

"Setting:

It is January 2010 and as the Chief Executive Officer of TM Toys Inc. you are evaluating a strategic acquisition of Toy Co. Inc. Toy Co. Inc. designs, manufactures and markets a variety of toy products worldwide through sales to retailers and wholesalers and directly to consumers. Toy Co's closing market value of equity per share on 12/31/09 was $19.49. Your task is to estimate the intrinsic value of Toy Co. Inc.'s equity (on a per share basis) at 12/31/09 using the Enterprise DCF Model; this will assist you with the determining what per share offer to make to Toy Co. Inc.’s shareholders. In performing your analysis keep in mind the following:

*The company has an interest-bearing debt balance at 12/31/09 of $618.10 (millions) and a non-operating assets (cash) balance of $1,156.8 (millions), Treat all of the results/forecasts for the fiscal year ended 2010-2014 as projections.
* Enterprise Value/EBITDA Exit Multiple range of 10.5-11.5x "


















Toy Co. Weighted Average Cost of Capital
"Cost of debt: Estimated borrowing rate is 6.13% with a marginal tax of 27.29% results in an after-tax cost of debt of 4.5%
Cost of equity: Levered equity beta for Toy Co. is .777; using the capital asset pricing model with a 10 year Treasury Bond yield of 4.66% and a market risk premium of 5% produces an estimate of the levered cost of equity of 10.57%.
Weighted average cost of capital (WACC): Using the target debt to value ratio of 6.99% the WACC is approximately 10.14%."

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CourseLover
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Status NEW Posted 22 Dec 2017 04:12 PM My Price 10.00

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