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A significant reduction in Mercury's days sales in inventory (DSI) and a possible combination of Mercury's and AGI's women casual lines. Using Liedtke's base case
A significant reduction in Mercury's days sales in inventory (DSI) and a possible combination of Mercury's and AGI's women casual lines.
- Using Liedtke's base case projections and the comparables' market information, estimate the value of Mercury using a discounted cash flow approach without considering any possible synergy effect.
- Currently Mercury has no debt in its capital structure.
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5-Year Projections by John Liedtke | ||||||
Mercury's Financial Results | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 |
Consolidated Revenue | $479,329 | $489,028 | $532,137 | $570,319 | $597,717 | |
Divisional Operating Expenses | 423,837 | 427,333 | 465,110 | 498,535 | 522,522 | |
Corporate Overhead | 8,487 | 8,659 | 9,422 | 10,098 | 10,583 | |
Depreciation | 9,587 | 9,781 | 10,643 | 11,406 | 11,954 | |
Change in Working Capital | $4,569 | $2,648 | $9,805 | $8,687 | $6,234 | |
Capital Expenditures | 11,984 | 12,226 | 13,303 | 14,258 | 14,943 | |
Change in Other Assets | - | - | - | - | - | |
Change in Other Liabilities | 0 | 0 | 0 | 0 | 0 | |
Assumption: The FCF will grow at the constant growth rate of 5% after 2011. |
Based on your answer in (a), suppose Mercury is going to change its capital structure with a long-term debt to value ratio of 30% (10% higher than the base case scenario) from 2011 onward.
1) The interest expense to the new capital structure will reduce the net income after tax
2) How does this recapitalization affect the value of Mercury?
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