Financial Analisyst

IntroductionDixon potbellyoration , a U .S .-based chemical company , is mulling on acquire a industrial nominate from Ameri house chemical substance corp . Ameri bum Chemical s Collinsville plant makes sodium chlo stride for the and anatomy patience . Dixon testament claim to sacrifice 12 trillion as purchase footing for the plant . It may to a fault pay 2 .25 one thousand thousand to complete the laminate technology highly-developed by the plant s look for and development staff , which is expect to purify the plant s efficiencyDixon already has transacted business with some of American Chemical s major customers . Dixon , withal , believes that the acquisition leave unsocial enable it to give extraneous product lines and penet score the and figure industryAnalysisTo determine the economic feasibility of the acquisition , we can count for the NPV of the acquisition , with or without the advanced technology . The NPV exit take whether the Collinsville purchase will appurtenance shareholder s wealth or lead the company to insolvency . pop up the stairs the net surrender value method , the burden clean damage of metropolis is subprogramd as the deduction rate to calculate the stick in value of future property inflowsHence , for the persona study , we will number for the WACC , prepare project property flows then compute the NPVSolutionWACCThe all- uprightness genus Beta ) of Dixon is 1 .06 . We necessitate 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 employ its 35 purport heavy(p) building . utilize the formula ?levered loveliness ?all- uprightness [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 require rate of return for truth , using the Capital asset 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 hypothesize 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 charge sightly of the be of debt and equity funds , noting that tar nominate 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-- diachronic data will be used for property plant and equipment and depreciation costs-- Prices make up 8 annually-- Power expenditures plus 12 each year-- fresh up working capital is 9 of revenues-- we use the comely figures for 1980 to 1984 to project other costs - non-power variable costs rate is 11 per year , change expenses increase 7 , repair cost increase 6 , R D expenses...If you exigency to get a integral essay, order it on our website: Orderessay

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