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Robertson Tools Company

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Robertson Tools Company value analysis

Monmouth Inc. is a leading producer of engines and massive compressors used to force natural gas through pipelines and oil out of wells. It is has dependence on sales to the oil and gas industries, the earnings of which is fluctuated owing to cyclical nature of heavy machinery and equipment sales. Anyway, the company’s amount of earnings growth and sales are above average in long-term view. From the last three acquisitions the company adhered to only leading companies in their respective market segments. The fourth company on the list of acquisition was Robertson Tool Company.
Robertson Tool Company is one of the largest domestic manufacturers of cutting and edge hand tools with wide distribution …show more content…

This way of proposal would be attractive to both companies management. Also, Monmouth can renegotiate with Simmons on the pricing of shares decreasing from what it propose to lower level, taking into account the high risk that Simmons shares are facing with a possible negative for it merger of Robertson and NDP.

All figures are presented in mln.
Calculation of Weighted Average Cost of Capital (WACC):
WACC = We * Re + Wd *Rd * (1 – T)
Where,
Re – Cost of equity = Rf + B * (Rm – Rf)
We – Market Value of Equity/Total Firm Value (Debt + Equity)
Rd – Cost of Debt before Tax
Wd – Total Debt/Total Firm Value (Debt +Equity)
T – Tax rate 40%
Calculations of Cost of Equity:
Re = RF + BETA * (RM - RF)
Where,
Rf - 30-Year U.S.Treasury Bonds from Exhibit 7 4,10%
RM - Market Return of Stocks 10,1%
B - Equity Beta from Exhibit 6 using average of six Peers 0,96
Cost of equity 9,85%
Calculations of Cost of Equity:
Rd = Interest Expense / (Long-term Debt + Short term Debt)
Where,
Interest Expense $ 0,80
Long term Debt of Robertson $ 12,00
Short term Debt $ 0
Cost of Debt 6,67%
After-tax cost of debt 4,00% Calculations of We and Wd:
Share price (closed at) $ 44,00
Number of shares outstanding (mln) 0,584
Debt of

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