Firm: WESCO International

SEO Evaluation

• Assume your firm plans to undertake the project evaluated in Project 3. Use the NPV you found for the project (If your NPV was negative assume the project NPV was $15 million). The project will cost $20 million dollars and it all be financed with external funds. Debt is too expensive, so they are planning on issuing more equity.
  • Determine how many shares the firm will need to issue and at what price to fund the project.
    • Use the most recent share price and assume the new shares issued in the SEO will cause the price to decline by 3%.
    • Use the firm equity value and shares outstanding found in previous projects.
      • Explain why the share price would decline by 3%.
  • Calculate the gain/loss in equity value for existing shareholders if the project was undertaken.
  • Calculate the gain/loss in equity value for existing shareholders if the project was undertaken and there was fair market pricing (no 3% decline when the SEO is issued).
  • Calculate the gain/loss in equity value for existing shareholders if they still issue the SEO but do not undertake the project.
  • Compare the three scenarios. Explain why the equity value was different in each scenario. Which scenario is best for old equity holders and why? For new equity holders and why?
  • If you are acting in shareholders interest, should you go ahead with the project.