Case ID: 4050     Solution ID: 21099     Words: 1773 Price $ 75

Mercury Athletic Valuing the Opportunity Case Solution

Case Solution

An English-language PDF of this Brief Case in an academic course pack will allow the students with the opportunity to buy an audio form as well. In January 2007, West Coast Fashions, Inc., a huge designer and promoter of branded clothes, made public a strategic restructuring that would lead to the divestiture of their completely owned footwear subauxillarysidiary, Mercury Athletic. John Liedtke, the manager of business development for Active Gear, a well-off athletic and casual footwear firm, viewed the possible purchase of Mercury as an exclusive chance to approximately increase his business size to double. The case utilizes the possible purchase Mercury Athletic as a tool to instructstudentsfundamental DCF (discounted cash flow) valuation with the use of the weighted average cost of capital (WACC). Debt-Free Cash Flow Projections, Terminal Values, Non-operating Assets, Valuation, Operating Projections, Enterprise and Equity Value, Sensitivity Analysis, Acquisition, Weighted Average Cost of Capital, United States, Footwear, Athletic Apparel, Footwear.

Excel Calculations

Base Case Projected Segment Performance ($ in thousands)

Projection of Selected Balance Sheet Accounts, 2007-2011 ($ in thousands)

Growth rate Comparision

Cost Of Capital Calculations

 Asset Beta Calculations

 Beta of Companies with similar Debt/Equity

Cash Flow and Opertiang Assumptions

Cash Flow Analysis 

DCF Calculations 

 Terminal Value Calculations

 Net Cash Flow growth Rate

 Enterprise Value Calculations

 Acquisition Price and NPV

Questions Covered

Is Mercury an appropriate target for AGI?

Review the projections formulated by Liedtke. Are they appropriate? How would you recommend modifying them?

Estimate the value of Mercury using a discounted cash flow approach and Liedtke’s base case projections. Be prepared to defend additional assumptions you make?

Do you regard the value you obtained as conservative or aggressive? Why?

How would you analyze the possible synergies or other sources of value not reflected in Liedtke’s base case assumptions?