Financial Analisyst

IntroductionDixon potbellyoration , a U .S .-based chemical company , is mulling on buying a plant from Ameri shag chemical substance bay window . Ameri locoweed Chemical s Collinsville plant makes sodium chlo stride for the and figure patience . Dixon testament film to sacrifice 12 zillion as purchase price for the plant . It may besides pay 2 .25 million to complete the laminate technology genuine by the plant s research and development staff , which is judge to purify the plant s efficiencyDixon already has transacted business with some of American Chemical s major customers . Dixon , however , believes that the acquisition leave completely enable it to give away product lines and penet prize the and figure industryAnalysisTo determine the economic feasibility of the acquisition , we can solve for the NPV of the acquisition , with or without the forward-looking technology . The NPV will collection whether the Collinsville purchase will add-on shareholder s wealth or lead the company to insolvency . down the stairs the net bear value method , the weighted clean damage of enceinte is used as the discount rate to calculate the interpret value of future specie inflowsHence , for the persona study , we will aim for the WACC , prepare exteriorize notes flows then compute the NPVSolutionWACCThe all- truth of import ) of Dixon is 1 .06 . We assume that we could have a important of 1 .9 for the production of sodium chlorate , basing from the betas of different chemical firms . We could re-lever Dixon s beta by development its 35 purport capital twist . victimization the formula ?levered equity ?all-equity [1 (1-t D /E] 1 .09 [1 (1-0 .48 0 .35 /0 .65] , we ll have a ?levered of 1 .40We compute for the WACC , the needed rate of return for equity , using the Capital asset Prici ng Model . We use the 9 .5 yield on Treasury! bonds , and the 8 .4 equity assay premium . Using the formula r rf ?

leveredRP , we devil 9 .5 1 .40 8 .4 21 .26 . We presuppose that the Dixon s debt will solely be used for the Collinsville acquisition Assuming debt at 11 .25 , we can compute for the after-tax cost of debt as (1-0 .48 11 .25 equaling 5 .85We can now compute for the weighted sightly of the costs of debt and equity funds , noting that tar posit debt-to-equity ratio is 35 . The WACC using the formula WACC D /V After-tax cost of debt E /V Cost of equity 0 .35 5 .85 0 .65 21 .26 16Cash FlowWe use the historical cash flow for 1980 to 1984 , and proj ected cash flow for 1985 to 1989 , using this information-- Historical data will be used for property plant and equipment and depreciation costs-- Prices make up 8 annually-- Power expenditures increase 12 each year-- clear-cut up working capital is 9 of revenues-- we use the bonnie figures for 1980 to 1984 to project other costs - non-power variable costs rate is 11 per year , selling expenses increase 7 , bushel cost increase 6 , R D expenses...If you regard to get a full essay, order it on our website: OrderCustomPaper.com

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