The Big Consumer Product Company acquires 100% of Green Grass Diapers for $ 540,000 on 12/31/x0. Green Diapers company is diaper manufacturer that specializes in the manufacture of organic diapers. It started off as a cloth diaper service company. After some R & D, they launched a reasonably successful brand of ecologically friendly diapers with the "Green Grass" trademark. Assume that Big Consumer Product Company is a publicly traded company. Green Grass is a debt-free company. Green Grass holds a patent for its ecologically friendly diaper technology. The management of Big Consumer Product Company provides you with the forecast shown below. The Base year is the current year with historical data. Details of buyer specific synergies are also provided. You have previously computed the weighted average cost of capital to be 15% for Green Grass Company which is consistent with the management's estimate. Your analysis suggests that market participant revenue and cost synergies are 4% of revenues and of COGS and Operating expenses respectively. REQUIRED: Clearly state all assumptions and show your workings.

Question The Company uses its own patented technology to produce the organic diaper. Without this technology its EBIT would have been 16% of revenues ( it is 17.6% with the technology) and revenues themselves would be 20% lower than the usable forecast. The patented technology helps produce a superior product at a lower cost. You judge that a market participant can also capture these cost savings with the patented technology as also other market participant synergies. The appraiser is examining the facts and circumstances related to the patented technology. Given the competition, the appraiser judges (based on interviews with the management) that a compeititor will come up with superior technology after 3 years. The appraiser is not sure whether to consider this asset as a separate identifiable asset. If it is to be valued, the appraiser judges a discount rate of 23% to be appropriate. Should this asset be valued as a separable, identifiable asset? Why? What is your estimate of its value? CAC is 5% on PPE, Wcap, TM in both circumstances (with or w/o patent). Dont forget TAB! Hint: use a with-without approach. This means calculate net Income and residual/excess income with the patented technology and without it. Then estimate the differential or incremental income and find its present value using an appropriate discount rate. So to start with you need to calculate: Revenue With Patent Revenue Without Patent