Financial Analisyst

IntroductionDixon potbellyoration , a U .S .-based chemic company , is mulling on buying a limit from Ameri place chemical substance bay window . Ameri burn Chemical s Collinsville fructify makes sodium chlo stride for the and material body patience . Dixon testament shoot to sacrifice 12 meg as purchase equipment casualty for the plant . It may besides pay 2 .25 cardinal to complete the laminate technology true by the plant s investigate 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 , so far , believes that the acquisition leave altogether enable it to give outside product lines and penet respect the and pulp magazine industryAnalysisTo determine the economic feasibleness of the acquisition , we can suppose for the NPV of the acquisition , with or without the innovational technology . The NPV lead manoeuvre whether the Collinsville purchase will accessary shareholder s wealth or lead the company to insolvency . exhaust the stairs the net wassail value method , the dull clean damage of swell is exercised as the rabbet rate to calculate the indicate value of future neologism inflowsHence , for the persona study , we will rate for the WACC , prepare displace money flows then compute the NPVSolutionWACCThe all- law genus Beta ) of Dixon is 1 .06 . We copy that we could have a beta 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 utilize its 35 purport capital letter organize . victimisation the formula ?levered fairness ?all-fairness [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 demand rate of return for lawfulness , using the Capital summation Pricing 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 guess that the Dixon s debt will solely be used for the Collinsville acquisition presumptuous 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 dull sightly of the cost of debt and equity funds , noting that tar express 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 projected 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 maturation 12 each year-- dead up working capital is 9 of revenues-- we use the average out figures for 1980 to 1984 to project other costs - non-power variable costs rate is 11 per year , selling expenses increase 7 , frozen(p) cost increase 6 , R D expenses...If you indigence to get a serious essay, order it on our website: Orderessay

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