Essay on BP Amoco Case Write Up

I used WACC as the discount factor, we expect the rate of return to be higher than it, the same at least. The WACC reflects the average risk and overall capital structure of the entire firm [2]. It’s the required return and it presents how much the company pays for the capital it finances. In this case, the cost of equity is 10.33%, the cost of debt is 6.50%. I calculated WACC using those numbers and got a result of 8.49%.

It is important to look at it because it is a measure that investors can use to evaluate the financial health of the company. However Liedkte being more conservative he says that the combined businesses could achieve and EBIT of 9 % and when looking at the projections for Mercury from 2007-2011 we can see a growth in earnings. So then what are the cash flows if Liedtke thinks the combined businesses will have a revenue growth of 2% in year 2011 considering we discounting back to 2006. We need to calculate the Free Cash Flow (FCF) in order to determine if the Net profit Value is positive or negative. Knowing that we will know if the acquisition should be undertaken. When looking at the excel sheet we can see that the NVP using the discount rate given by the case 7.65 % with a growth rate of 3 % gives us an NVP= $ 275,399.78. Therefore the NVP’s value compares the value of the investment made today to the same value of the amount in the future. So that is the amount AGI needs to pay up front. The free cash flows are made from the financial statement given in the case and were determined using the FCF method; EBIT (1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital

This is an important valuation method used to estimate the desirability of an investment opportunity. Discounted cash flow (DCF) analysis uses future free cash flow projections and discounts them (using the weighted average cost of capital) to arrive at a present value. The calculated present value is then used to evaluate the potential for investment. For this project, the DCF analysis will be used to evaluate the intrinsic value of the CVS health corporation (“DCF,” n.d.).

Pioneer Petroleum Corporation (PPC) has two major problems that are interfering with the goal of the firm to maximize shareholder wealth. The first is that PPC has been calculating their weighted average cost of capital incorrectly, by incorrectly calculating their after tax cost of debt and their cost of equity. This miscalculation has subjected PPC to more risk and has hurt the company’s ability to make appropriate investment decisions. This has also led PPC to accepting investment decisions that should not have been included within their acceptable range. Second, PPC has been using a single company-wide rate for their multi-divisional company. In either instance the company is not

SET IN MAY 2008, THIS CASE REFLECTS THE SEPARATE PERSPECTIVES OF CHIEF EXECUTIVE OFFICERS TOM ELIOT AND BILL FLINDER AS THEY APPROACH THE NEGOTIATIONS OF RSE INTERNATIONAL CORPORATION TO ACQUIRE FLINDER VALVES AND CONTROLS INC. YOUR TASK IS TO COMPLETE A VALUATION ANALYSIS OF THE TARGET AND BUYER AND TO NEGOTIATE A PRICE

Plaintiff brought suit under the Kansas Uniform Commercial Code (UCC) to recover damages resulting from the breach of an express warranty by the defendant. A jury in the United States District Court for the District of Kansas found in favor of the plaintiff. The defendant appealed the decision.

For my DCF I assumed that the business will slow down to 2% growth in 2018 before picking up to 4% & 10% respectfully in 2019-2020. I assumed a terminal Perpetuity Growth Rate of 1% and a discount rate of 9%. I arrived at an Implied Fair Value of $74.12 a 25% upside.

distribution network. This will improve our operation and increasing our sales force. My valuation range for BV was $36.78-$49.28. I used the adjusted present value to calculate the price per share and used that as the lowest valuation for BV. Additionally, I used their current stock price as their maximum valuation. For SS, my valuation range was $55.17-$57.98. I also used the same method to come up with these valuation range. The eventual outcome helped my company Starshine because stock price per share increased from $51.96 to $57.98 (+$6.02 or 11.59% increase). See exhibit 2A-2B & Exhibit

The Stock market reaction to the acquisition of the PacifiCorp seems to portray the deal as win-win situation since it created value for both companies. The Berkshire Hathaway’s share price closed the day at 2.4%, with a $2.55 billion gain in market value, while the Scottish power Plc only managed a $0.81 billion. For the previous owners, Scottish power included, the price offered shows the gain in value over a few years since the merger with PacifiCorp is significant. As per acquisition accounting, the $2.5billion increase in market value is the company’s increase market value. The share price increase in share price also indicates that it was a good long-term deal.

In Table 1 these assumptions are used to find the present value of the additional cash flows as well as the present value of the tax shield. From this merger approximately $36.24 would be added in value per share this results in a value of $107.24 per share. We recommend that CSX does not offer more than $95 per share. This will ensure that CSX does not overpay for the acquisition and will create a positive NPV even if they do not realize all of the potential synergies.

With an exchange ratio of 2, about 78% of the new firm would be owned by Cooper. The relatively high exchange ratio would result in a severe reduction of control to Nicholson’s shareholder (22%). Under the given circumstances with an exchange ratio of 2, the acquisition premium for paid would be $ 14 per share. The minimum synergies required that this offer makes sense would be $ 8.18 Mio. Given my synergy valuation from

The Deontological ethics is marked by steadfastness to universal principles—for example, respect for life, fairness, telling the truth, keeping promises—no matter what the consequences (Halbert, Law & Ethics in the Business Environment. pg. 17).

Calculating the As-Is multiple value is only the first in the valuation process. In order to calculate the appropriate multiple, improvements, synergies and future options have to be taken into account. The acquisition of McCaw by AT&T will create several hard synergies through cost savings of advertising, lower cost of debt through refinancing using AT&T favorable credit rating and lower SG&A through economies of scale. These hard synergies will increase the As-Is multiple by 1. Moreover, the acquisition of McCaw by AT&T will create soft revenue synergies through geographical expansion of AT&T to markets where McCaw is dominant and vice versa. Also, soft synergies can be capitalized through the cross selling of AT&T’s hardware products with the wireless services of McCaw ( Refer to Exhbit B for Marketing Mix Analysis). Due to their uncertainty, the soft synergy will only increase the As-Is multiple by 0.50. Lastly, Mr. Craig McCaw would require a premium for giving up control of the company which requires adding 0.25 to the As-Is multiple. The final multiple for McCaw Cellular will equal to 11.84+ 0.25+1+0.5 = 13.59. It is important to mention that incorporation of future options was ignored due to the lack of information in the case. The multiple is multiplied by the forward revenue (1314) in 1993 which yields a value of $17.857 billion.

The third business that both BP and Amoco separately engaged in prior to the merger was the production of petrochemicals. BP had operations for this segment more widespread than the others and distributed to over 60 countries. Amoco, on the other hand, concentrated heavily in the United States staying consistent with the other two businesses. Revenue percentages for petrochemicals were very low for both companies, but operating income percentages were as well; 7 and 11 percent respectively for BP and 16 and 16 percent respectively for Amoco.

After the deal was announced, the prices moved towards equilibrium. Our price went to £7.90 while the price of McPhee shares went to £6.32: