EF 4314-Capital Structure—Mercury Athletic Case
Question # 00505748
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Updated on: 03/30/2017 12:25 AM Due on: 03/30/2017
Capital Structure—Mercury Athletic Case
The last page of the Mercury Athletic case mentions at least two possible sources of value creation not captured in Liedtke’s base case scenario: a significant reduction in Mercury’s days sales in inventory (DSI) and a possible combination of Mercury’s and AGI’s women casual lines.
- (a) Using Liedtke’s base case projections, estimate the value of Mercury using a discounted cash flow approach without considering any possible synergy effect. (10 points)
Base Case Assumptions | |
Marginal Tax Rate | 40.0% |
Debt Beta | 0.0 |
Risk Free Rate | 4.93% |
Market Risk Premium | 5.00% |
Debt to Value ratio | 20% |
Cost of Debt | 6.00% |
- (b) Describe the effects on Mercury’s financial model if Mercury’s DSI (Day Sales Inventory) is reduced by 30% to the same level as AGI’s? (10 points)
- (c) Describe how you would analyze possible synergies or other sources of value not reflected in Liedtke’s base case assumptions. (5 points)
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Rating:
/5
Solution: EF 4314-Capital Structure—Mercury Athletic Case