UNIVERSITY OF MARYLAND Smith School of Business BUFN 750 Question Sheet: Congoleum Corporation Prof. Dalida Kadyrzhanova Spring 2013 In this case‚ you have to evaluate the LBO proposal and decide whether the $38 per share o¤er price is appropriate. You will combine the valuation principles and methods discussed in the course to evaluate a complex transaction from the perspectives of the various participants. Your write-up should address and defend the assumptions that underlie the inputs
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Organization and Markets Harvard University Working Paper No. 04-26 Agency Costs of Overvalued Equity Michael C. Jensen Harvard Business School; The Monitor Company; Social Science Electronic Publishing (SSEP)‚ In. This paper can be downloaded without charge from the Social Science Research Network Electronic Paper Collection at: http://ssrn.com/abstract=480421 MICHAEL C. JENSEN April 2004 Agency Costs of Overvalued Equity Michael C. Jensen mjensen@hbs.edu Jesse Isidor Straus Professor
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| Table of Contents Cost of Capital 2 Value of Equity 2 Cost of Equity 2 CAPM Model 2 Dividend Growth Model 3 Value of Debt 3 Cost of Debt 4 WACC (Weighted Average Cost of Capital) 4 Comparison to Joanna Cohen’s Analysis 4 Financial Statement Analysis 5 Nike Inc. 5 Financial Ratios 6 Leverage Ratios 6 Efficiency Ratios 6 Liquidity Ratios 7 Profitability Ratios 7 Valuation Ratios 7 Conclusion 8 Appendix A – Ratio Calculation 9 Leverage Ratios 9 Efficiency Ratios 9 Liquidity Ratios
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Guideline Questions for you Report 1. What is the value of the project assuming the firm was entirely equity financed? What are the annual projected free cash flows? What discount rate is appropriate? NPV = $1‚228‚485 Discount rate = cost of equity (from CAPM) = 15.8% (see model for projected free cash flows) 2. Value the project using the Adjusted Present Value (APV) approach assuming the firm raises $750 thousand of debt to fund the project and
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goals‚ Midland must calculate an appropriate cost of capital that will allow reasonable valuations of their strategies. In funding overseas growth‚ Midland must use its cost of capital to analyze‚ evaluate‚ and convert foreign cash flows. In evaluating value-adding projects‚ the cost of capital must be used to discount project cash flows. To optimize its capital structure‚ the company must continuously evaluate its ideal borrowing based on its inherent cost. Lastly‚ when deciding when and how to repurchase
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1. How are Mortensen’s estimates of Midland’s cost of capital used? How‚ if at all‚ should these anticipated uses affect the calculations? Mortensen’s cost of capital estimates are used for a variety of purposes at both the divisional and corporate levels. Examples include internal analyses such as financial accounting‚ performance assessment and capital budgeting‚ while others are used for strategic planning purposes such as merger and acquisition‚ as well as stock repurchase decisions (Luehrman
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Check out the seniors discounts that the following popular restaurants around St. Augustine‚ Florida offers: Outback Steakhouse Located at 312 State Road‚ this Australian-themed restaurant offers lunch and dinner daily. They offer AARP members a 15-percent discount every Monday through Thursday. Their menu features sides‚ entrees‚ specials and scrumptious desserts including their signature steak sandwiches‚ wood-fired grilled shrimp and triple-layer carrot cake for two. Village Inn This casual
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Cash Discount on Sales Cash discount is the discount offered by seller for paying cash early. Cash discount is only offered on credit sales where the customers do not pay at the time of sale but promise to pay latter. There are two methods of accounting for sales that offer cash discounts; the gross method and the net method. These two methods are explained with the help of the following example: Example Suppose Company A sells certain goods at a price of $4‚400 with terms of payment
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The discount rate Main article: Discount rate The rate used to discount future cash flows to their present values is a key variable of this process. A firm’s weighted average cost of capital (after tax) is often used‚ but many people believe that it is appropriate to use higher discount rates to adjust for risk or other factors. A variable discount rate with higher rates applied to cash flows occurring further along the time span might be used to reflect the yield curve premium for long-term
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