Nina's Fashions Case Study Essay

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Nina’s Fashions Inc. Case Study There are 7 vital parts to completing this comprehensive analysis of whether Nina’s Fashions and their management should acquire the Chic Company. 1) Gather information regarding mergers and present it to Nina’s board of directors. 2) Discuss reasons and factors justifying mergers, including their benefits to society and each company. 3) Discuss the Pro’s and Con’s of a hostile versus friendly mergers, along with some data on how shareholders from each side have fared in past mergers. 4) Do a sensitivity analysis of all data that was estimated and used in the merger analysis. 5) How to start negotiations, the beginning offer, and the max price per share. 6) Try to justify buying Chic…show more content…
6. Calculate the unlevered firm value as the present value of the unlevered horizon value and the FCFs at the unlevered cost of equity. 7. Calculate the value of the tax shields as the present value of the tax shield horizon value and the individual tax shields. 8. Calculate Vops as the sum of the unlevered value and the tax shield value. INPUT DATA: KEY OUTPUT: Premerger Data: Discount rate 17.85% Beta of target 1.2 Terminal Value $15,274,752 Debt ratio of target 40.0% Acquisition value $3,590,958 Tax rate of target 30.0% Maximum offer price $0.72 Number of shares 5,000,000 Postmerger Data: Debt ratio after merger 50.0% Tax rate after merger 40.0% Terminal growth rate 5.0% Market Data: Risk-free rate 10.0% Market risk premium 6.0% = = = = = = MODEL-GENERATED DATA: Discount Rate Analysis: Terminal Value Analysis: Premerger beta 1.20 Terminal growth rate 5.0% Unlevered beta 0.82 Terminal value CF $15,274,752 Postmerger beta 1.31 Discount rate 17.85% Cash Flow Statements: 1993 1994 1995 1996 Net sales $4,000,000 $6,000,000 $7,500,000 $8,500,000 Cost of G.S.: 50.0% 2,000,000 3,000,000 3,750,000 4,250,000 Depreciation 400,000 450,000 500,000 550,000 Selling/admin expense 300,000 400,000 500,000

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