Sterling Household Products Company

651 Words Mar 24th, 2015 3 Pages
Please provide an articulate, concise, and theoretically sound answer. Answers need to be supported with examples from the texts and Exhibits. This may require some due diligence on your part. Please retype the question and your response. 1. How much business risk is associated with Sterling’s proposed acquisition of the germicidal, sanitation, and antiseptic products unit of Montagne Medical? Be sure to define business risk in your answer.

2. Verify the growth rates for sales and inflation (cost of goods sold, CGS) that are described in the case. This can be calculated from the income statement (Exhibit 1). An excel sheet containing the information described in the case can be found on Blackboard. What is the formula for
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A correct response requires that you find an appropriate industry beta and measure for levered/unlevered betas and requires that you define cost of equity capital and free cash flow (FCF) – you may need a formula for FCF.

10. What is the correct capital structure and weighted average cost of capital for discounting the investment’s free cash flow. Assume a 35% tax rate. A correct response requires that you define capital structure and Weighted Average Cost of Capital (WACC) with a formula. When defining a term with a formula be sure that all the variables are also defined.

11. What are the amounts and timing of the acquisition investment’s free cash flow from 2013 through 2022? You will need to find an appropriate growth rate and extend Exhibit 6 out through 2022.

12. What is the terminal value of the final 10 years of the acquisition, as of 2022? An appropriate multiplier can be found in the case body literature.

13. What is the formula for the Present Value (PV) for a finite stream of cash flows (1 per year) that lasts for 10 years?

14. How close does the terminal value in part 2 get to the present value using the growing annuity formula in part 3?

15. What is the Present Value (NPV) to Sterling of the base investment using FCF for 2013-2033?

16. What are the amounts and timing of the follow-up expansion investment