Interpretation of Interco’s Financial Performance

offered the option to reinvest $20 to receive additional new Ford common shares. In this

Days before the merger is made public, Begelman initiates a trade for 25K shares of Bluegreen stock

3. At what price would you recommend that Rosetta Stone shares be sold?Rosetta Stone: Pricing the 2009 IPO

3. Compute the unlevered free cash flow and the interest tax shields from 2008 to 2012 based on estimates provided in Exhibit 1 and Exhibit 6. (3 points)

Exhibit 4 tells us that the stock price of Interco started going up in July from about $44 to $72 on the day of the Board meeting. This tells us that markets anticipated that Inteco is a target for acquisition and increased the stock price of Interco in anticipation of an acquisition premium.

3. Wasserstein, Perella & Co. established a valuation range of $68-$80 per common share for Interco. Show that this valuation range can follow from the assumptions described in the discounted cash flow analysis section of Exhibit 12. As a member of Interco’s board, which assumptions would you have questioned? Why?

As shown in the financial income statement (Exhibit3), Intel Corp. (INTC) has a capital structure consisting most of equity. Intel has very little debt in its capital structure and the cost of debt would have only a marginal effect on the overall cost of capital. The current capital structure of Intel is not optimal yet since optimal capital structure is making minimum weighted-average cost of capital.

The repurchase program increases the shareholder’s value. This is because of a rise in the price of the shares of the original shareholders.

In the open market share repurchase, the firm may or may not declare the repurchase. Depending on the market condition and the firm’s position in the industry, the firm can decide when and how many

2. Evaluate the two offers in Exhibit 7. What explains the two structures? In each case, what is the value to MCI shareholders?

Another factor for management to consider would involve the clientele effects. Presently the Wrigley family controls 21% of common shares and 58% of Class B common stock. Assuming the Wrigley family do not sell any shares, the repurchase will raising their voting control from 46.6% to a majority control over voting rights at 50.6% (see appendix2.2). This isn’t deemed significant as the Wrigley family already previously possessed majority of voting rights

These two offers came from 1) a fund consortium led by Robertson Stephens Omega Fund (“RSC”) and Technology Crossover Ventures (“TCV”) and 2) CellTech Communications (“CellTech”), a vendor of wireless technology which had recently gone IPO.

Refer to Appendix B for the Wasserstein, Perella & Co valuation. As with any discounted cash flow analysis, some of the underlying assumptions made could be questioned. The projected sales growth rates and the terminal growth rate used in the analysis could be considered to be low, as Interco is known to be a growing company. The assumption that sales would only grow 7.2% over the projected timeline was a little conservative, considering that sales growth was 13.4% in 1988, even though retailers were facing a slump at the time. A 14 multiple with a 10% discount rate provides a 2.66% growth rate in

to realize a higher price for its common shares by offering potential investors a “money-back

Because firm value will rise to $6,850.8 million immediately after the recapitalization announcement, original shareholders will capture the full benefit of interest tax shield since they are able to sell their stocks at a higher price. The new stock price is determined by dividing the value of the levered firm by the number of shares outstanding at the end of 1998. Since there were 185, 516,055 shares outstanding at year end 1998, the new stock price after the announcement of recapitalization would be $6,850.8 million divided by 185, 516,055, which is $36.93. Compared to the