Fins1612 Test1

For the purpose of calculating the net present value of the project, an appropriate cost of capital has to be calculated at which free cash flows of the project should be discounted. Since the project will be solely financed by selling new shares, cost of equity will be used as the discount rate. Beta for the company can be assumed to be equal to average of the betas of the competitors of the company. This average beta value comes out to be 1.2. Risk free rate is 0.17% while risk premium has been estimated to be 6%. Thus by putting these values in CAPM formula, we can find the cost of equity for the company which is 7.39%.

The remainder of this note discusses each of the steps in the process and then provides an exercise on the various financial measures that are useful as part of the analysis. The final section of the note demonstrates the relationship between a firm’s strategy and operating characteristics; and its financial characteristics.

The questions that follow and the article Comparing the Accuracy and Explainability of Dividend, Free Cash Flow, and Abnormal Earnings Equity Value Estimates will inform your completion of Milestone Three. An understanding of the models in this assignment will assist you in hypothesizing the incremental impact of a new investment project for the company. The understanding of these models will contribute to your ability to look toward the future when considering the direction of an organization. This activity is worth a total of 75 points. See the distribution of points listed before each question.

For the corporation that has acquired another company, merged with another company, or been acquired by another company, evaluate the strategy that led to the merger or acquisition to determine whether or not this merger or acquisition was a wise choice. Justify your opinion.

Stock issuance costs were recorded as a reduction in paid-in capital and are not considered to be a component of the acquisition price.

To better understand a firm and its placement of its strategies, we must conduct an analysis of factors that might affect its selection of strategies.

* For the corporation that has acquired another company, merged with another company, or been acquired by another company, evaluate the strategy that led to the merger or acquisition to determine whether or not this merger or acquisition was a wise choice. Justify your opinion.

Review of Financial Research Report: This assignment is an analysis of a US publicly-traded company; its common stock could be a prospective investment.  The report is due in Week 10, in needs to be at least 5 pages, and it needs to cover the following topics:

After considering the operational improvements forecasted, we project Robertson’s free cash flows and compute the terminal value using the Gordon Growth Method; the implied share price is analyzed further in accordance to growth rate and discount rate.

These factors were set as a qualitative base that has driven the company’s performance, stability and growth. We facilitated our valuation of GMA through key drivers in the form of financial ratios and methodologies involving the forecasting of discounted cash flow model through derivation of cost of equity (re) from the Capital Asset Pricing Model (CAPM). Cost of Capital has been derived through Weighted Cost of Capital (WACC) method and Net Present Value has been derived. Basis the NPV analysis, we arrived upon three possible scenarios of growth (best, baseline and worst) as mentioned below.

- Sales increase: a) cross-promotions of each company’s brand and utilization of each company’s channels, and b) cooperation in international businesses.

We valued the company using four different methods; Net Present Value, Internal Rate of Return, Modified Internal Rate of Return and Profitability Index. We began with the Net Present Value, or NPV, calculation. NPV values an investment’s profitability based on the projected future cash inflows and outflows of the investment, discounted back to present value using the WACC. The calculations for NPV are presented in Appendix 2. We started by separating cash inflows and outflows by each year. We used Bob Prescott’s estimates for the revenue per year and related operating costs of cost of goods sold as

Normally, the underwriter’s agreement can come in two basic forms: Firm Commitment and Best Efforts. Using a Firm Commitment arrangement the investment bank will acquire all the new shares from the issuing firm and then be responsible to market it to the public. The compensation for the investment bank is the spread between their purchase price and public offering price. Using this method, the investment bank undertakes the full risk of not being able to sell all the shares at the determined price. By the best effort arrangement, the investment bank assists the issuing firm to sell their shares. The investment bank serves as an intermediary between the potential investors and the issuing

Growth Funds- Funds are invested in diversified stocks having high capital appreciation and generally involve more than average risk. Investors not due to retire soon, willing to accept risk and plan to hold the investments for longer time periods prefer to invest in growth funds. They are considered to be tax-efficient and provide the benefit of compounding.

The finance term “acquisition” means a corporate action to buy a part of or all of a target company’s ownership states (Hill, 2012). This action aims at taking control of the target firm. In the common scenario, a firm takes an acquisition towards the target company in order to achieve potential growth. The company treats the acquisition as a beneficial step to take over an existing company’s operation instead of taking an expansive action by itself.