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financial reporting financial statement analysis and valuation

Questions and Answers of Financial Reporting Financial Statement Analysis And Valuation

2. Sell Wendy’s Developing Brands (Baja Fresh, Cafe Express, and minority stake Pasta Pomodoro).
1. Spin-off Tim Horton’s as a stand-alone publicly traded company.
14.7 In 1994 Euro Disney S.C.A. issued 290 million 10-year warrants to bond-holders and equity-holders, with three warrants giving the right to purchase one share at the exercise price of ¤6.098.
14.6 As of July 1, 1994, Euro Disney S.C.A. had 25.7 million convertible bonds outstanding, each with a par value of ¤21.3343 plus 10% premium due at maturity, and convertible into 1.361 shares,
d. How would you value (i) the new senior notes, (ii) the subordinated notes and the equity participation received by the subordinated holders, and (iii) the equity retained by the original
c. What determines the bargaining power of the several parties?
. In your opinion, what should be the response of each class of creditors (senior- and subordinated-holders) to the proposed exchange?
a. Is the proposed recapitalization plan feasible? Change Exhibit B as per the terms of the proposed exchange and complete the columns for years 2 through 5.
14.5 The assets of Super Mart, Inc. were acquired by SM-Holdings Corp. in an LBO transaction for $1,300 million financed with $1,150 million debt of which $650 million were 12% senior notes and $500
You, a recapitalization specialist at the newly established Sour Deals department of First Morningside Corp., have been retained by the senior lenders to propose a recapitalization plan for the
Soon after the LBO took place, SMP learned that the initial projections were unduly optimistic. In fact, at the present time, which is the end of the first year of the LBO, EBIT is down to $200
14.4 A year ago, the assets of REFC, Inc. were purchased by SMP Partners in an LBO transaction for $1,250 million, financed with $1,100 million debt of which $550 were 12% senior notes and $550 were
c. Under what conditions do you expect bond-holders to tender their shares at a discount from par?
b. Do you expect bond-holders to balk at the offer? Why?
a. Why would reset notes such as Ingersoll’s trade at a discount in spite of an imminent rate reset that would bring them to par?
To assure buyers of protection of their investments, reset debt promises to adjust the interest rate periodically so that the debt trades around face value.
14.3 In March 1990, Ingersoll Publications, Inc. offered to buy back some of its high-yield(junk) bonds at sharp discounts from face value. The company offered to purchase as much as 80% of its $125
14.2 Estimate the debt capacity of Southland using the Debt Capacity Calculator with the data in Exhibits 14.2 and 14.3.
14.1 Refer to Section 14.2 and use the Debt Capacity Calculator to verify that the debt capacity of the company falls to 4.1.314 Recapitalization of Troubled Companies
b. Suppose that in order to reduce your equity requirement you are offered a guarantee in the form of a put for your common equity. Under the alternative arrangement, your equity would be puttable to
a. What equity participation (percent ownership) would you demand if you require 17%expected return from the joint proceeds of the subordinated note and the equity and you assume exit in year 5 at an
13.11 You are considering whether to invest $10 million in the 5-year subordinated notes of HTF, Inc. on October 1, 2007. The annual coupon of these notes is 8%, and its principal is due at the end
13.10 You are familiar with two approaches to the valuation of warrants. One approach uses present value analysis and exit values to price warrants given as equity kickers in leveraged
13.9 On February 25, 2002, the private placement department of Provident Mutual was evaluating a $10 million loan request from Fly-By-Dusk, Inc. The loan principal would be repayable in five annual
13.8 Good Ground wants to insert a safety covenant that provides that if Blindex’s stock price falls below $5 at any time during the life of the warrants, the warrants expire and Good Ground
b. What is the all-inclusive cost of each financing alternative?
a. What is the dollar cost of the warrant sweetener to Blindex?
The warrants would expire in 8 years. Blindex has 10 million shares outstanding and has not issued convertibles or warrants in the past. Its stock is valued at $8 a share and the volatility of its
c. Compare the unit issue with the straight subordinated debenture alternative in terms of cost to CWI and other features you consider relevant.13.7 The Blindex Corp. is negotiating an 8-year
b. What is the value of the warrants?
a. What price would the $1bn 6.5% debentures trade for without the warrants?
13.5 Notsoblue Chip Corp. wants to issue $50 million of 10-year debt on March 3, 2007. The bonds will be issued at par with 8% annual coupon interest (50,000 bonds of $1,000 par value each, with
d. Estimate the expected returns to management and the sponsor.
c. Calculate the amount of warrants needed to achieve the target return on the mezzanine debt on the basis of a 5-year exit and possible refinancing of the mezzanine debt.
b. Develop pro-forma projections given the operating assumptions and the appropriate capital structure.
a. Design an appropriate capital structure for the leveraged recapitalization of Cap & Seal with consideration to the paydown requirements of the senior debt facility.
13.4 Project “Blue Snapper”: In April 2000, the board of directors of Cap & Seal agreed to give management an exclusive opportunity to acquire the company at a price determined by an independent
13.3 Refer to the end of Section 13.8 and compute the return to mezzanine investors and to the sponsor taking into account that the value management’s stock options is $7.56 per option.
13.2 Use the debt capacity Equation (7.4) with the average values of the projections for Peregrine Coatings made in Section 13.8 to compute the debt capacity of the company. Hint: You can use the
e. Prepare a table comparing the equity splits and the returns to the sponsor and to management when: (a) Gladstone gets 30% return; (b) Gladstone gets 25% return; and (c)the equity is split
d. What annual rate of return can management expect to realize on their equity rollover?Problems 283
c. What share of the equity will Gladstone Capital Partners demand?
b. Prepare a statement of sources (financing tranches) and uses (total purchase cost) of funds for the LBO. What is the purchase EBITDA multiple?
a. Complete the provided income and cash-flow statements, and debt amortization and debt balance schedules for the LBO for the years 2008 to 2012.
12.7 Value Pet¨ofi by discounting nominal HUF cash flows.
12.6 Value Pet¨ofi by discounting U.S. dollar cash flows.
c. Pet¨ofi has 23.194 million shares outstanding and planned to issue 6.604 million shares in the private placement. Issue fees and expenses were expected to be 5.88% of gross proceeds. Estimate
b. Estimate Pet¨ofi’s enterprise and equity values.
a. Estimate Pet¨ofi’s unlevered cost of capital as of December 1991.
c. The median EBITDA trailing multiple at the end of 1991 from six North American and UK publicly traded packaging companies was 7.9×, and the median EBITDA multiple from six international
12.4 In 1991 Pet¨ofi Printing Company was the leading packaging company in Hungary.35 Since its privatization by the Hungarian State Property Agency in 1990, capital expenditures had been adequately
d. Now you have to divide the value of equity by the number of shares. How many shares to use? Hope this problem offers no difficulty because from now on you are on your own!
. From the enterprise value, you have to subtract net debt to obtain the value of equity.However, the company had no debt at the beginning of 1994 and had cash and marketable securities for $16
b. To compute EBITDA add depreciation to NOPAT. For example, EBITDA for 1994 is computed as follows: 3,883 + 3,324 = 7,207.
In the fall of 1993, Leucaida, the owner of Bolivian Power Co. was planning a secondary offering of shares in the U.S. market.33 Bolivian Power was in the business of generation, transmission,
12.2 Verify the computation of the cost of capital for AixCorp’s valuation of APSSA.254 Acquisitions in Developed and Emerging Markets
12.1 Verify the calculation of future dollar/euro spot rates and the dollar cash flows made in Exhibit 12.1.
11.7 Refer to Example 2 of Section 11.2 and interpret Diageo’s clawback as a call spread. Show the payoff of the call spread and compute its value using the Asian call module of the Financial
11.6 Some years ago, the Norton Simon Company was created from the merger of Canada Dry, McCall’s, and Hunt Foods. Later on, Norton Simon was acquired by Esmark, which in turn was acquired by
11.5 Consider the following terms contained in the merger agreement between Qwest and US West executed on July 18, 1999: US West shareholders were to receive common stock having a value of $69 so
11.4 Refer to Section 11.3 and provide two alternative interpretations to the simplified version of Borland’s collar offer in terms of European options. Use the put-call parity (see Appendix A)or a
11.3 Value the following gold price guarantee provided by the seller to the buyer of a gold mine as of August 17, 2001: The contract would pay 5 million times the difference between Problems
11.2 Compute the volatility General Mills’ stock as of July 16, 2000, using the data shown in the following table. This estimate is used in Section 11.3.Weekly Closing Prices of General Mills, July
11.1 Compute the volatility of Marion Laboratories’ stock as of July 14, 1989, based upon the previous 52-week closing prices and dividend payments given in the following table. This estimate is
10.21 Refer to the previous question and consider the following alternative capitalization for DesignPlus: DesignPlus was capitalized with 12 million Series-A shares, owned by Georgetown, and 2.5
c. What would the IRR of Georgetown’s investment in DesignPlus be, assuming the IPO of NetServices takes place as planned? Georgetown expected to exit 6 months after the IPO. Assume that no
b. Build another capitalization table showing the shares issued to Georgetown and Design-Plus management, as well as the percent ownership of all the parties after the acquisition of DesignPlus.
a. Build a capitalization table showing the distribution of the 25 million shares of Net-Services among Morningside, STL, and Letts.
NetServices proposed to acquire DesignPlus at 3 × 2000 pro-forma revenue, and pay $19 million cash plus an equity stake in NetServices for series-A shares. Management would get common shares in
STL Consulting and Letts. STL was a system-integration firm with annual billing through July 31 of $20 million. In addition, Morningside had invested $75 million cash in NetServices for about 45% of
10.20 Georgetown Group was the 82.76% owner of DesignPlus.com, an Internet site-design firm. Management owned 17.24% of the company. DesignPlus was capitalized with 12 million series-A shares, owned
c. Do you expect the call provision to be costly to TVL? Explain.
b. What determines the value of a call provision? How will the call provision affect the pricing of the issue?
a. What is the role of the call provision in the specific case of TVL?
10.19 The core business of TVL Corp. is undergoing a difficult period. TVL bonds have been downgraded to BB rating in order to reflect the higher probability of default the company 24The loan
g. Compute the EBITDA multiple implied by the IPO valuation with respect to the 7/1/05 to 6/30/06 pro-forma numbers. Is the P/E multiple with respect to net income during the same period meaningful?
f. Add the balance of the proceeds from the IPO minus the retirement of the outstanding debt to the cash balance of NetTune as of 6/30/2004 and project the cash balances through 12/31/2005. Assume
. What is the allocation of the expected IPO proceeds? Allow 6% for fees and expenses.
d. How much can Gustav expect to pay Colossus in total for NetTune?
c. What is the expected value of Allen Venture Partners’ stake on June 30, 2004 based upon the expected IPO value of NetTune? What is their expected return multiple (that is, how many times their
b. How much can Martin Gustav expect to be worth at the IPO time
a. What percentage of the equity needs to be sold in the IPO?
All the above looked very appealing to the NetTune crowd. But Gustav still needed$15−$3−$5 = $7 million. Mar¨us (Colossus’ VP) had indicated Colossus might be willing to provide bridge
Rather than an alternative standard to MP3, the technology was completely flexible and could be set to allow a variety of standards, including MP3 and the standard recommended by the industry’s
Between him, his NetTune associates, friends, and relatives Gustav hoped to get $2 million cash. This, plus the stock appreciation rights he had in Colossus, plus the severance payments he planned to
10.18 It took Mike Strong, the new CEO of Colossus, 5 minutes into Martin Gustav’s presentation to turn to Bob Mar¨us, the Vice President of Corporate Development, and say: “We are not a music
10.17 Valuation of holdbacks: Consider now the case where part of the purchase price is held back by the buyer to be paid if and only if certain conditions are met. For example, refer to Problem 10.9
10.16 Suppose that Mr. Webster would instead receive a perpetual earnout in the form of class-A shares that would pay dividend based upon the performance of VASM, which would be operated as a
10.15 Open the Financial Options Calculator. Save the copy to use under another name such as“Perpetual.” Add a data table to the call option module of this copy and compute the value of the
10.14 Suppose the earnout of VASM is based upon the 2.5 times the excess of EBITDA over a $6 million yearly threshold for the next 3 years payable at the end of every year. In addition, each yearly
Assume the terms of the earnout are as specified in Problem 10.9. Suppose that the seller of VASM can repurchase his company in case the buyer is unable to pay the earnout at maturity, and that the
10.12 Let the earnout of VASM be payable at the end of the 3rd year based upon the excess of average EBITDA during the previous 3 years over $6 million and be capped at $10 million. Value the earnout
10.11 (a) What would the value of the earnout of Problem 10.10 be if it were capped at $10 million? (b) Redesign the earnout such that even with the cap it has the same value as in Problem 10.9.
10.10 Consider the following alternative earnout for VASM’s Mr. Webster. The other components of the consideration stay the same. The earnout would pay 3.484 times the excess of 3rd-year EBITDA
While Mr. Webster would take into account his salary as president of the subsidiary, as well as the tax consequences of the transaction, you should ignore these matters in answering the above
d. What is the initial enterprise value EBITDA multiple offered by Prentice?
c. How much is Prentice Works offering for the enterprise (net debt plus equity) of VASM?
b. What is the value of the earnout agreement?
a. What is the cost to VASM of the 7.5% $7 million note offered by Prentice Works?
Prentice Works’ corporate tax rate is 40%.

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