Grand Metropolitan Plc Essay

The table below shows the equity betas for the firms presented in the case (using Jan-92 to Dec-96 equal weight NYSE/AMEX/NASDAQ as market portfolio):

To find the cost of equity we used the formula rs = rRF + beta*MRP in which rRF2002 = 5.86% and the Market Risk Premium (MRP) = 5% as calculated by the Southwest Airlines finance department. We then calculated the beta for Southwest Airlines based on a regression analysis of five-year monthly returns on Southwest stock from January 1997 to January 2002, compared with the S&P 500 returns over the same period. This regression analysis indicated that Beta = .2219. Therefore,

The share price of $270,000 was significantly higher because the “fair value” as perceived by the dissenters, which accounted for the chance of an IPO. Taking into account the recently traded Kohler Co. share prices, the book value of a share, and the possibility of an IPO greatly inflated what the perceived value of each share should be. While Kohler believed their voting control and ownership structure would remain the same, the shareholders believed otherwise. Because shareholders assumed Kohler would go public, they argued for a higher valuation so as to receive the highest price, and thus profit, in the buyout.  So based on the highest MVE, we picked Masco as the comparable firm of choice. Using Masco’s MVE, $9838.8, and LTM EBIAT, $437.3, we solved for Masco’s P/E ratio, which was equal to 22.5. By multiplying the P/E ratio by Kohler’s LTM EBIAT (22.5 * $93.76), we projected a market value of $2,109,610,000.  To solve for estimated share price, we divided the projected market value by 7,587.89, the number of shares outstanding to obtain an estimated share price of $278,023.47. This estimate is near the $270,000 per share offer price.

This Corporate Finance paper focuses on analyzing the challenges that Northampton Group Inc. (NGI) is facing as it tries to increase shareholder value. In the case study it is stated by the firm’s major shareholders, that they believe NGI is currently undervalued. In connection with this, the management of NGI is considering several means of increasing the shareholders value. Due to difficult economic conditions resulting from the Global Economic Crisis, there are both

The following paper will discuss General Motor’s (GM) mission, vision, objectives, and goals, along with General Motors compared and contrasted by management styles with Toyota Corporation whom adopted total quality management (TQM). The paper will discuss characteristics of Toyota Corporation TQM with General Motors and the extent to which Toyota Corporation TQM practices can integrate into General Motors management practices.

Using the same market risk premium and risk free rate (5.5% & 4.62% respectively) given in the case, the averaged beta of 1.40, the pretax cost of debt of 7.65%, and the weighted average of debt & equity, the products & systems

Our reconciliation for this undervaluation is that the market is already pricing in a takeover. Some evidence of this can be demonstrated by the 1.0 beta of paramount. If we look at the 1992 Q1 to August 30 1993 returns of S&P500 and PCI, PCI is +30.6% and S&P500 is +14.6%, which implies an approximate

In the case study, “The William Wrigley Jr. Company: Captial Structure, Valuation, and the Cost of Capital” the author, Robert Bruner, examines how Blanka Dobrynin, managing partner at Aurora Borealis, explores the opportunity to persuade Wrigley’s board to complete a leveraged recapitalization through a dividend or major share repurchase. Through her active investor strategy, Blanca is trying to increase the value of investment in Wrigley. Blanca’s objective would be to create ultimately new value in Wm. Wrigley Jr. corporation and thus increase the value of Aurora Borealis’

Much has been written about famed U.S. investor and Berkshire Hathaway CEO Warren Buffett’s investment style and successes. Preeminent among these writings are the oft-cited Berkshire Hathaway shareholder letters, written by the “Oracle of Omaha” himself. These informative letters have been the basis for a multitude of books. But even with an abundance of available information on “how to invest like Warren Buffett,” it is apparent that something is lacking, how does Buffett determine an acceptable price for companies of interest? This article provides an example of the process

Tied in with projections for commodity pricing is the undervaluation of the company. A major incentive for management in this buyout is clearly this undervaluation. KMI had been valued between $100 and 120 a share, yet was trading at only $84. KMI had experienced five years of increasing revenues and its net income was on an upward trend. KMI was financially healthy and its vast infrastructure would only continue to generate cash flows. It was a perfect buy-low scenario for the investors that knew the firm the best, the managers.

After determining the risk-free rate, we need to determine the beta coefficient. The regression beta can be calculated by using weekly share price of BAL’s and ASX S&P200. The result shows that the regression beta equals to 0.3183, however, the R-square is only 1.229%. Therefore, levered industry beta is more reliable than regression beta.

To determine the beta factor of a given firm, three things must be put into consideration;

Furthermore, from the decreasing collections period it can be seen that GM had to write off portions of its receivables due to the fact that consumers would no longer be able to pay the company with the financial crisis happening (Appendix A). As the crisis continued it can be seen through decreasing liquidity ratios that GM became less solvent, and the company’s decreasing payables period shows that suppliers became far less tolerant of GM borrowing from them (Appendix A). Finally, the extremely low price-earnings ratio of GM signals that shareholders had very little faith in how well the company would do in the future (Appendix A).

When first looking at potential projects to pursue, we always prioritize determining which correct financial information to use when determining our project’s β (beta)(OR METRICS). When calculating the project beta we first determined our firm's levered beta. When comparing the monthly return data of Smitt corporation's stock over the past five years to the S&P 500 over the same time period, we are given a levered beta of 1.131.The next step is to remove our debt considerations from the thought process, which means calculating the unlevered beta. Using the previous five years of tax rates and debt/equity ratios, we were able to find the average sensitivity(OR beta) of all monthly returns to be .877.

McKinsey research shows that divestments are a major potential source of value creation but a largely neglected one (Roxburgh, 2016). While anchoring may be a powerful tool for strategists when negotiations or naming a high sale price for a business may help secure an attractive outcome for the seller, since the buyer’s offer is anchored around a figure. Most retail-fund managers advertise their funds on the basis of past performance. Repeated studies have failed to show any statistical correlation between good past performance and future performance. Our expectations about equity returns have been seriously distorted by recent experience. A sunk cost