Please show step by step so I can understand how this is done. Emailed teacher and he was absolutely no help
- Calculate thetotal valueof GE Appliances and Electrolux.
Hint: We are looking for the total value from Electrolux's pointof view. Look at PV values in exhibits 7 through 9:
Total Value = GE Appliances + Mabe Interest + Synergies
A. Using the projected seven-year valuation,calculatetherange of valuesfor GE Appliances.
B. Do the terminal valuessupport the merger?Looking at the numbers in the exhibit, do you think the merger should happen? Is it a good investment?
Support your answer with a full explanation of why (or why not), with supporting financial information.
Hint: There will be three calculations: a preliminary calculation based on the case study, an expanded year valuation from four to seven years, and an expanded calculation from four to seven years including NWC.
Bookmarks Develop Window Help MO learn.snhu.cdu https:Mea.. FIN630_.. AIN 630 S.. Short_Pa.. Fin 630 M. Summary of Exhibit 7 Valuation of GE Appliances Revenue No TV No TV Terminal Value Growth In Case No Capex No Capex Capex No NWC NWC NWC 4 Years 7 Years 7 Years 7 Years -1.00% $457 $80 -$12 -$3,863 0.00% $718 $524 $563 -$2,102 1.00% $984 $984 $1,158 -$249 2.00% $1,254 $1,800 $1,776 $1,700 3.00% $1,531 $2,475 $2,416 $3,752 4.00% $1,812 $3,175 $3,079 $5,909 Southern New Hampshire University Summary of Exhibit & Valuation of GE Interest in Mabe Revenue In Case No Terminal Values Terminal Growth Values 7 Years 7 Years 1.00%% $60 $28 5394 2.00%% $128 $135 $114 3.00%% $198 5304 $648 3.80% $254 $445 $1,096 4.00% $268 $480 $1,211 Extension of Exhibit 9 Value of Synergies MacBook Proary Bookmarks Develop Window Help M learn.snhu.edu port.. 3) https/4.. https /se.. FIN630_B. FIN 630 5.. Short_Pa.. Southern New Hampshire University Summary of Exhibit 8 Valuation of GE Interest in Mabe Revenue No Terminal Values Terminal Growth In Case Values 7 Years 7 Years 1.00% $60 -$28 -$394 2.00% $128 $135 $114 3.00% $198 $304 $648 3.80% $254 $445 $1,096 4.00% $268 $480 $1,211 Extension of Exhibit 9 Value of Synergies Revenue Growth In Case No Terminal Values Terminal Values 0.00% $509 $1,019 $2,558 to the tables above, if you were presenting to senior management and had to give one number for and how would you arrive at the numbers? Explain your answers. of final valuation as the conservative number. For GE, you should look at 7-year TV, Capex, and NWC. wth, and for synergies, use the case numbers.New History Bookmarks Develop Window Help Bi M I services hoop.harvard edu manent cost savings arising from the integration of GE Appliances and Electrolux operations in North America. It was estimated that $200 million would arise from combining manufacturing operations (taking advantage of the newly renovated GE Appliances manufacturing operations), with an additional $100 million per year arising from common sourcing and reduced overhead. The team estimated, internally, that to take full advantage of GE's existing North American operations would require $300 million in reorganization expenses (including write-offs), plus an additional $60 million in capital expenditures (investment). As illustrated by the valuation team's preliminary calculations in Exhibit 9, both expenses and investments would be spread out over the first two years, Once completed, however, Flec- trolux believed it would save $300 million per year (half that amount in 2015 as the reorganization proceeded), in its existing sales and operations in North America. This was significant and could potentially be even larger over the long run. Exhibit 9. Synergies Accruing to Electrolux of Acquisition (millions of US dollars) 3 Electrolux US Operations Projected Projected Projected Projected Projected Projected Synergy CF Assume 2014 2015 2016 2017 2018 Revenue syncrgics 50.0 100.0 150.0 200.0 Operating cost savings 150.0 300.0 300.0 300.0 Reorganization expenses (150.0) (150 0) Capex for reorganization (30.0) 130.0) Net cash flows from synergies (180.0) 20.0 150.0 500.0 Taxes 40%% 72.0 18.0 (160.0 (180.0] (200 0) Net operating cash flows NOCF (108 0) 120 240.0 270.0 300 0 Present Value factor 10%% 1.000 0.209 0.826 0.751 0.683 PV of NOCF CLO8 11 198 205 205 Cumulative PV MacBook Pro W E R T Y U O P S D F G H KWindow Help IMONIDF I nervous hose harard.edu Exhibit 8. Mabe of Mexico's Forecasted Income and GE's Share (millions of US dollars) Mabe of Mexico Actual Projected Projected Projected Projected Projected Projected Income Assure 2013 2014 2015 2016 2017 2018 Revenue (USD, millions) $2 90070 $3,010.2 $3,124.6 $3,243.3 $3,366.6 $3,494.5 Revenue growth (96) 3.80# 3.80% 3.80% J.8095 3.8045 Less direct &: indirect costs 376 [2.633.0) (2.712.0) (2.723.31 [2.877.21 (2 963.5) 3.052 4) EBITDA 267 0 298.2 331.2 366.2 103.1 442.1 EXITDA margin ($6) 9.296 9.998 10.694 12.0% 12796 Depreciation (1 16.0) (1 16.0) (116.0) (1 16.0) (1160) (1 16.0) FRIT 151.0 182 2 215.2 250.2 287.1 326.1 Interest [48.0) (43.2) (38.91 350 (31.5) [28.3) EBT 103.0 Y 139.0 176.4 215.2 255.6 297.8 Taxes 3036 (30.91 1 (70.5) (85.1) (102.2) Net income 72.1 $83.4 $105 8 $129.1 $153.4 $178.7 Return on sales ( 96) 2.896 3,495 4.095 5. 150 GE's share of Mabe profies 48.59% $35.0 $40.45 $51.32 362 62 $74.38 $56.66 Present Value hoop 109% 1.000 0.909 0.8.26 0.751 0.683 PV of GE cash benefits 40.5 46.7 51.7 $5.9 59.2 Cumulative PV Enimaged sales based on the fim 6 months " Electrolux corporate finance policy was to use 10.096 for all dollar-based acquhition valasticen. Cost Synergies. Con synergies are reduced operating expenses associated with running combined businesses after acquisition. They are realized by claiminating duplication in activities and overhead across the businesses in the post-acquisition integration process. Electrolux believed that there would be about $300 million per year in per- manent cost savings arising from the integration of GE Appliances and Electrolux operations in North America, Ic was estimated that $200 million would arise from combining manufacturing operations (taking advantage of he made earned CE Acollapses manufaramrina aboating) with an additional $100 million mar m MacBook Pro Q W E R T Y U O PDOON View Hisary Bookmarks Develop Window Q I services .kbop harvard.edw Find 30 M. The valuation team had started list on the core cement-the valuation of GEARalone, As seen in Exhibit 7. this was based on the basic numbers provided by GE for the 2013 and 2014 (to date) years, combined with some of Electrolux's own U.S. sales forecasts. Top-line growth assumptions were the big drivers, and, as seen, 2015 was forecast to be strong, followed by moderate growth (for conservatism). Exhibit 7. Valuation of GE Appliances Using DCF Analysis (millions of US Dollars) GE Appliances Actual Actual" Projected Projected Projected Projected Projected Income Assume 2013 2014 2015 2016 2017 2018 Revenue (USD, millions) $5,700.0 $5,814.0 $5.988.4 $6.168.1 $6.353.1 $6.543.7 Revenue growth (9%) 2.0046 3.0095 3.0096 3.0096 3.0095 Less direct & indirect costs 2.0% (5.345.0) (5.451.9) (5.560.9) (5.672 21 (5.785.6) (5.901.3) EBITDA 355.0 362.1 427.5 495.9 567.5 612.4 EBITDA margin (96) 6.296 7.196 7.695 Depreciation (175.G (17941 (190.G) (192 1 BRIT 179.4 182 7 236.9 303.5 375.1 150.0 I GE Appliances 2 3 DCF Valuation 2013 2014 2015 2016 2017 2018 EBIT $179.4 $182.7 $236.9 $303.5 $375.1 $450.0 Less recalculated taxes 4096 (71.8) (73.1) (9.4.8) (121.4) (150.0) (180.0) Add back depreciation 175 6 179.4 190.G 192 4 192.4 192 4 Net Operating Cash Flow $283.2 $289.0 $332.7 $374.5 $417.5 $462.4 Present Value factor 1046 1.000 0.909 0.826 0.751 0.683 PV of NOCF 289.0 302.5 309.5 313.7 315.8 Not Present Value (NPV) $1,531 Estimated sales based on the first 6 months " Electrolux corporate finance policy was to wir 10,0% for all dollar-based This baseline valuation isolated net operating cash flow for GE Appliances for the first four years, the pres- ent value of those cash flows totaling $1.531 billion." It was a very basic valuation, but as one member of the team noted- mart. The teamn identified three specific topics for expanded analysis (1) expanding the years of coverage beyond the current four years (2015-2018); (2) adding capital expenditure (capec); and (3) Including change in art working caird /MWC) The ambais would alow need mo evaluate a number of d firemenr sales and MacBook Pro 6 9 W E R T Y U P
