Chapter

Mercury Athletic

International Business/ Spring 2016

Learning objectives: To apply restructuring and asset valuation theory and principles.

Type: Mercury Athletic is an individual case.

Requirements:

1. The case is to be submitted through the “Assignment” link in Blackboard by 11:59pm on July 22, 2016. Submit your Excel spreadsheets and PowerPoint presentation with your write-up. Your write-up should have your name on the title page.

2. You have been assigned by John Liedtke to evaluate a potential acquisition of Mercury Athletic by AGI. Your analysis, write-up and presentation should be to him. The write-up should address the questions and requirements below.

a. Do you believe that Mercury Athletic is an appropriate target for AGI? Explain your answer.

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

c. Estimate the value of Mercury using discounted cash flow and the base case projections. Include an explanation of any additional assumptions made. You can assume that the market risk premium is 5%, the target debt ratio is 20%, and the marginal tax rate is 40%. Your analysis needs to include:

i. Cost of Equity

ii. WACC

iii. Free Cash Flow to the Firm through 2011

iv. Terminal value in 2011 estimated using constant growth. Be prepared to defend the growth rate you select.

v. Terminal value using the EBITDA Multiple

vi. Value of the assets (Using both terminal values)

vii. Value