Mergers & Acquisitions and other Restructuring Activites (Donald M. DePamphilis)

Chapter 9 - Discussion Question #2

((The case is in the textbook, please referr))

Using the model resutls of your changes from questions (1), the CFO believes that in addition to an increase in the sales growth rate and an improving cost position, Life Tech could employ its assets more effectively by better managing its receiveables and inventory. Specifically, the CFO directs you as a financial analyst to make the following changes to days sales in receivables and days in inventory. On the Target Assumptions Worksheet, make the following changes and note their impact on Life Tech's enterprise and equity values on the Valuation Worksheet:

a. Reduce receivables days by 10 days starting in 2014.

b. Reduce inventory days by 10 days starting in 2014.

What is Life Tech's enterprise and equity value resulting from these changes? How do they compare to the results in questions one? Breifly explain why each of these changes affects firm value. Do not undo the changes to the model you have made.