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Acquisition of Pinkerton. This would involve elimination of overhead expenses and improvements in
NWC. Marketing of both firms could be made common to optimize costs
Scenario 2
Maintaining the status quo as the challenges to manage Pinkerton may be too much for the
management
3)
s and improvements in
mize costs
Q5 a) Opex/SR 6.61%
Particulars 1988 1989
Sales Revenue 367.47 326.64
Opex (under status quo) 24.25 21.56
(-) Proposed Opex 22.05 19.27
Saving in opex 2.20 2.29
=> Increase in EBIT 2.20 2.29
After-tax increase in EBIT 1.46 1.51
Incremental PVCF 1.3150019881 1.2323384831
Value of reduced overhead 24.9532912859
1984 1985
Revenue Growth rate 3.8% 1.5%
Present GP Margin 6.51%
CL
LTD 2 77
OE 18 43
Q7) Particulars y1 y2
FCFF of Pinkerton 15.06 15.74
Incremental CF for CPP 0 1.2
CPPs CF 2 2.8
Total Cash available 17.06 19.74
Fin Plan A Principal repayment 0 0
Interest payment (@11.5%, 5.69 5.69
Excess CF 11.37 14.05
Cumulative buffer 11.37 25.42
14.05
Scneario 1 Scenario 2
1990 1991
70% of '87 75%
5.80%
0.89
= 13.48%
ded which implies debt is 0
//From exhibit 2. Using CPPs interest expense data Wrong
//Pretax
.59%*(D/V)
= 56.4
//Partial Sale
3 4 5
1990 1991 1992
285.81 300.10 315.11
27.15 30.76 32.30 Net PPE =
16.58 17.41 18.28
10.57 13.35 14.02
6.98 8.81 9.25
11.43 12.00 12.60 //Rough to calculate delta capex
1.66 -0.57 -0.6
17.72 18.61 19.54
6.45 -0.89 -0.93
15.09 7.36 150.94
11.14 4.91 90.96
1990 1991 1992
1.5 2 3
0.99 1.32 38.71144876 TV = 36.73144876
0.730572292 0.880260609 23.32846136
Post Acquisition B
100M -> Debt
2.3
102
18
y3 y4 y5
15.09 7.36 7.72
1.5 2 3 //From case text
3.1 4.3 4.4 //From exhibit 3
19.69 13.66 15.12
0 0 0
5.69 5.69 5.69
14.00 7.97 9.43
39.42 47.38 56.81
late delta capex TV Calculation
Scenario A
WACC = 10.66%
TV = 143.22
* 100 /408.3
9.23%