Capital StructureMercury Athletic Case

The last page of the Mercury Athletic case mentions at least two possible sources of value creation not captured in Liedtkes base case scenario: a significant reduction in Mercurys days sales in inventory (DSI) and a possible combination of Mercurys and AGIs women casual lines.

• (a) Using Liedtkes base case projections, estimate the value of Mercury using a discounted cash flow approach without considering any possible synergy effect. (10 points)

Base Case Assumptions
Marginal Tax Rate	40.0%
Debt Beta	0.0
Risk Free Rate	4.93%
Market Risk Premium	5.00%
Debt to Value ratio	20%
Cost of Debt	6.00%

• (b) Describe the effects on Mercurys financial model if Mercurys DSI (Day Sales Inventory) is reduced by 30% to the same level as AGIs? (10 points)

• (c) Describe how you would analyze possible synergies or other sources of value not reflected in Liedtkes base case assumptions. (5 points)