Essay about Nova Chemical

Risk free rate is taken to be 4.69% while the market risk premium is 5.01%.

1. Was Borg-Warner’s Industrial Products Group a good candidate for a leveraged buyout in 1987? Evaluate the price paid and the structure of the deal that closed in May 1987. Are you optimistic about BW/IP’s prospects?

The board decided that the company should be judged on its ability to make a profit, gain market share, provide positive ROA and make money for our shareholders with an increasing stock price. Our target was a stock price of $38

Assumptions need to be made for the Cost of Equity. We used the corporate rate of 11.766%

1) Estimate the WACC that is appropriate for discounting the Collinsville plant’s incremental cash flows. You should estimate and present each component of the WACC separately, explaining briefly but clearly what assumptions you are making for each of them. In the same spirit, estimate the appropriate all-equity cost of capital for the APV-based valuation.

AGENDA 1. 2. 3. 4. 5. Announcements Financial Markets and Net Present Value Survey Results Optional Material (e.g. Cases, Practical

According to the company’s annual report in 2009, the Federal statutory tax rate is 35%. Along with the above analysis, we have gathered all the key information necessary to estimate the WACC as following:

Capital Gains Yield: I was able to find the stock prices by multiplying the P/E ratio times EPS, both of which are found in exhibit 6. g = 1.90%

Nova Chemicals operates in both the basic and specialty chemicals segments. The IPD division that produced basic chemicals is under review for sale to United Chemicals due to its apparent poor performance. On further review it appears that the offer of $160 million is much lower than the actual value once the R&D expense is reallocated. At the same time since the IPD division does not share synergies with the other divisions it is recommended to either spin off the division or institute a tracking stock to make its actual value transparent to the market and thereby prepare it for a future sale. In order to raise the capital for a capacity expansion for the high growth Environmental Products division we recommend

As Market risk premium I take the “Spread between S& P 500 Composite Returns and Long-Term U.S. Government Bond Returns 1926-1987” from Exhibit 5 as appropriate value.

Also, the WACC of our company is always around 5.5%, we can use Monte Carlo Simulation to run the estimation of Equity value by changing WACC, growth rate and COGS/Revenue each year. The random calculation displays as the full report in attachment.

11. According to Ken French’s website, the risk-free rate has been zero since November 3, 2011.

The risk premium is equal to the difference between the risk-free rate and the expected market return. The case study provides two historical equity risk premiums; the geometric and arithmetic mean. The conventional wisdom is that the geometric mean is considered a better estimate for valuation over long periods, while the arithmetic mean a better estimate for valuation over shorter periods. To coincide with the choice of the 20yr yield on U.S. Treasuries, the geometric mean was therefore chosen for this analysis i.e. (Rm-Rf) = 5.9%

Conversely, looking at the income statement for PMWL, operating income shows healthy gains of $45,862, which means the operating expenses are significantly lower in comparison to AWBL’s. However, PMWL’s cost of goods sold appear abnormally high, which makes an investor question whether this company is at it’s maturity phase in the product life cycle, and how much additional capital is necessary to bring this figure down to a number that leverages economies of scale and allows for profit maximization.

It is determined that the company worth is $856,518 with a share price of $351.03 per value as per the discounting dividend cash flow valuation approach..In appraising the anticipated premerger performance of the company, the weighted average cost of capital is computed; the worth of the WACC for FVC is 9.2% as depicted in