Yeats Valves Business Evaluation
Yeats Valves and Controls Inc.
Case Study
Case Studies in Finance Class: Case Discussion in Finance Submission Date: 23.12.2012
Case Discussion in Finance – Yeats Valves and Controls Inc.
Table of contents
1 2 3 3.1 Issue Statement Is there a strategic fit between Yeats and TSE? Data Analysis Calculation of the WACC 4 5 6 6
3.1.1 Return on equity ............................................................................................................................ 7 3.1.2 Return on debt ............................................................................................................................... 8 3.2 3.3 3.4 4 DCF Analysis Using multiples what is the value of Yeats? Comparison firm value and stock value Recommendations 9 11 12 13
2 Andrea Auer, Tanja Bertossa, Denise Grittner, Dominik Willi
Case Discussion in Finance – Yeats Valves and Controls Inc.
Executive Summary We have been asked to advise Yeats Valves and Controls Inc. (YVC’s) how they should proceed with their business. On the next pages we are discussing if a merging with TSE International Corporation (TSE) makes sense. YVC’s and TSE have different strategies. YVC’s makes the largest part of its profit in one area – aerospace and defense sector. They are producing high quality products. TSE is a large company with a wide range of products. They are operating international and are known as a low cost producer. In chapter three we are discussing if the two strategies between those companies match together.
First we calculated the weighted average cost of capital (WACC). It is based on the assumption of a stable debt/equity ratio. YVC’s has no outstanding debt. We first had to compute return on equity and return on debt. To calculate return on debt for TSE we have taken the rating of a Baa Corporate Bond.
To find the present value of the future cash flows we used the discounted cash flow (DCF) method. It can be used to find the fair value of a firm. This
Case Study
Case Studies in Finance Class: Case Discussion in Finance Submission Date: 23.12.2012
Case Discussion in Finance – Yeats Valves and Controls Inc.
Table of contents
1 2 3 3.1 Issue Statement Is there a strategic fit between Yeats and TSE? Data Analysis Calculation of the WACC 4 5 6 6
3.1.1 Return on equity ............................................................................................................................ 7 3.1.2 Return on debt ............................................................................................................................... 8 3.2 3.3 3.4 4 DCF Analysis Using multiples what is the value of Yeats? Comparison firm value and stock value Recommendations 9 11 12 13
2 Andrea Auer, Tanja Bertossa, Denise Grittner, Dominik Willi
Case Discussion in Finance – Yeats Valves and Controls Inc.
Executive Summary We have been asked to advise Yeats Valves and Controls Inc. (YVC’s) how they should proceed with their business. On the next pages we are discussing if a merging with TSE International Corporation (TSE) makes sense. YVC’s and TSE have different strategies. YVC’s makes the largest part of its profit in one area – aerospace and defense sector. They are producing high quality products. TSE is a large company with a wide range of products. They are operating international and are known as a low cost producer. In chapter three we are discussing if the two strategies between those companies match together.
First we calculated the weighted average cost of capital (WACC). It is based on the assumption of a stable debt/equity ratio. YVC’s has no outstanding debt. We first had to compute return on equity and return on debt. To calculate return on debt for TSE we have taken the rating of a Baa Corporate Bond.
To find the present value of the future cash flows we used the discounted cash flow (DCF) method. It can be used to find the fair value of a firm. This