The document discusses RJR Nabisco's valuation using a discounted cash flow method. It involves developing cash flow scenarios, deriving an appropriate discount rate, and discounting the cash flows at the cost of capital. Key assumptions included operating margins for tobacco business increasing from 23% to 33% and tobacco sales and operating income growing 8.5% and more than 10% per year respectively. The complexity of RJR's financing structure is also discussed, including a bond buyback that boosted RJ's folding in RJR from 48% to 85%.
The document discusses RJR Nabisco's valuation using a discounted cash flow method. It involves developing cash flow scenarios, deriving an appropriate discount rate, and discounting the cash flows at the cost of capital. Key assumptions included operating margins for tobacco business increasing from 23% to 33% and tobacco sales and operating income growing 8.5% and more than 10% per year respectively. The complexity of RJR's financing structure is also discussed, including a bond buyback that boosted RJ's folding in RJR from 48% to 85%.
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The document discusses RJR Nabisco's valuation using a discounted cash flow method. It involves developing cash flow scenarios, deriving an appropriate discount rate, and discounting the cash flows at the cost of capital. Key assumptions included operating margins for tobacco business increasing from 23% to 33% and tobacco sales and operating income growing 8.5% and more than 10% per year respectively. The complexity of RJR's financing structure is also discussed, including a bond buyback that boosted RJ's folding in RJR from 48% to 85%.
Droits d'auteur :
Attribution Non-Commercial (BY-NC)
Formats disponibles
Téléchargez comme PPTX, PDF, TXT ou lisez en ligne sur Scribd
IIows wouId Iuve Lo grow uL u ruLe oI uL IeusL 18 %. O TIe vuIuuLIon oI RJR consIsLs oI sLeps:- DeveIop u seL oI cusI IIow scenurIos DerIve LIe upproprIuLe dIscounL ruLe DIscounL LIe cusI IIows uL LIe cosL oI cupILuI R AssumpLIons O R ussumed LIe IoIIowIng:- 1. OperuLIng murgIn Ior Lobucco busIness wouId Increuse Irom z;% Lo % z. Tobucco suIes und operuLIng Income wouId grow by 8. % und more LIun 1o % per yeur, respecLIveIy. O n 1q8; PIIIIp MorrIs reporLed u per cenL murgIn, LIe RJR Lobucco unIL u z; per cenL murgIn, AmerIcun Brunds u 11 per cenL murgIn und UnIversuI u ; per cenL murgIn. O TIougI US Lobucco murkeL wus decIInIng by % unnuuIIy , US exporLs oI cIgureLLes 6 % In 1q8; und by z % In 1q88. ConLd. TIe compIexILy oI LIe IInuncIng sLrucLure O To uvoId reseL oI coupon uL more LIun zo%, RJR decIded Lo buy buck Ior cusI LIe enLIre umounL oI LIe bond Issue, cosLIng ubouL $1.; bIIIIon. O TIe bonds were converLIbIe InLo z % oI RJR`s equILy In 1qq. So LIe buybuck boosLed R`s IoIdIng In RJR Irom 8 % on u IuIIy dIIuLed busIs Lo 8 %. O DrexeI seL LIe Muy 1qq1 reseL wILIouL uny cup or IIoor. O A second junk bond Issue uIso Iuced u munduLory reseL In Muy 1qq1. TIIs Issue resuILed wIen RJR, on JuIy 1;, 1q8q, excIunged ILs $q bIIIIon CumuIuLIve ExcIungeubIe PreIerred SLock Ior subordInuLed excIunge debenLures IuvIng un IdenLIcuI ruLe und u muLurILy duLe oI zoo;.