Dogloo

Wahoo Inc. is a C Corporation that filed for Chapter 11 bankruptcy protection in April 2015. Before filing bankruptcy, Wahoo has net operating loss (NOL) carryforwards of $65,000,000 in 2009, $45,000,000 in 2010, and $30,000,000 in 2011. The company worked out a re-organization plan and one of the note holders (a venture capital firm that financed the company) with a $105,000,000 note payable will receive new common stock and the old stocks will be cancelled. The Bankruptcy Court and the creditors’ committee have accepted the plan. The fair market value of Wahoo before the ownership change was $85,000,000. Wahoo’s selected assets from the balance sheet are as follows:

From Exhibit 4 the NPV is about $1.5 million. There initial investment is $400,000. Without included debt payments this appears attractive. However, the NPV should include the debt payments for a useful NPV. This reduces the NPV significantly. The investors double their money and the investment appears viable.

= 299.629. Notice, that the value of the firm with debt overhang is lower than the same problem without debt overhang in part (e). (h) Suppose the firm were to hedge. Would equity holders take the gamble and what would be the value of the firm? (10 points) Answer: If the firm were to hedge by selling gold in a forward contract, it would get a sure cash flow of $350. Then it would not not take the gamble, because even if it lost, it could still make the debt payment of 250 · (1.05) = 262.5 and taxes of .4(50 − 250 · .05) = 15 (we assume the debt is safe, and therefore has a yield of 0.05, and verify that it can make the payment).

* Analyze the investment requirements and develop a plan for how the company should pay for it (debt or equity).

Issue bonds for 125 million at 6.25% interest rate and 15 year maturity. Annual principal repayment will be 6.25 million, leaving 37.5 million outstanding at maturity.

Albert Dunlap was known for turning around badly shaped companies into profitable companies. Through his radical restructuring and downsizing methods, he created shareholder value. At Scott Paper, Dunlap fired 35% of all the employees and 71% of the corporate staff raising the stock price from $38.00 to $120.00 and sold the company to Kimberly Clark for more than $6B. Due to his past success, Al Dunlap was hired to turn around Sunbeam. Sunbeam had a long period of management and financial instability. In other words, Sunbeam needed a “savior.” Many believed this was Al Dunlap. Unfortunately, through his tenure at Sunbeam, stock price fell from a high $53.00 to $16.00 on the day that he was fired. Were his “rightsizing”

This has made the company more dependent on that particular brand which is not healthy.

Sometimes even the most brightest of minds fail. Doug Ivester, head of the Coca-Cola Company for only a little more than two years, resigned after an unofficial meeting with the two board members Warren Buffet and Herbert Alan. Fostered by former CEO Goizueta for over 10 years, he took over this position of one of the highest ranked global brands after Goizueta’s unforseeable death. As it turned out, Ivester could not generate the results he was expected to (Morris & Sellers 2000).

In July of 1980 MCI issued their first subordinated debenture at a rate of 15% due in the year 2000 raising $50,545,000 in capital. This rate was 346

large cash infusion of $700 million into various investment vehicles that will yield large returns

Debentures holder has to paid interest regularly. They also get preference of being paid first in case of wind-up of the company.

Rufus & Coco is a trustworthy and contain high reputation company with reliable pet products. However, the company is lack of marketing research and consumers are complaining poor sales location. Also, increasing rapidly in sales cause shortage of raw materials to produce sufficient amount of products. As increasing productions require a significant amount of workers, raw materials and transport costs. Experiencing inefficiency productivity and resources allocation could be the major risk to the brand, which may cause loss of loyal customers, and therefore affects company reputation. Moreover, competitors are likely to have larger market place, trying to supply more differentiated products to improve net income and

This investment requires a net cash outlay of (0.007V) and provides a net cash return of:

The current form of ownership is LLC and the total initial investment in the company will be $50,000-$100,000.

* One of the partner gets land of 6000sq feet as its investment instead of cash and