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*Prepare a spreadsheet for the base case NPV and s...




*Prepare a spreadsheet for the base case NPV and some sensitivity analysis. And you have to prepare a 1 page analysis that answers the questions given for Pleasure Craft. AND PLEASE READ THE FOLLOWING TO CORRECT SOME TYPOS AND USEFUL INFORMATION FOR CASE ANALYSIS. A. Quarterly versus annual It is not necessary to do the analysis on a quarterly basis (indicated on page 5) - do it on an annual basis. B. Typo on Page 3 On Page 3, "Sales were estimated to be $10,000 first year", should read "Sales were estimated to be 10,000 units first year" C. Cost of financing (discount rate = r=R) On Page 4 it is indicated that the firm uses the CAPM to estimate the cost of equity. That means that you need to use 2 formulas from MGMT 310 to work it out: Re = Rf + beta(Rm - Rf) Rwacc = B/(B+S) Rb + S/(B+S) Re You need to estimate Rwacc, and use this as the discount rate (r = Rwacc). Page 4 says that their target debt/equity is B/S = .30. This implies that target B/(B+S) = .3/(.3+1) = .23. And so S/(B+S) = 1 - .23 = .77. Page 4 says the company recently sold bonds with a coupon rate of 8% at a premium price of $105, so their recent company bond rate Rb was a little below 8% (Rb is approximately 8/105). Information about representative betas is given in Exhibit 3. They give a range of values for other companies, and so there is no exact answer - you can pick the beta from the most similar firm, you can average all betas, you can subtract high and low and then average, etc. (In theory, you can also calculate beta for Pleasure Craft directly from Exhibit 1, but you have never been taught how to do that, so I expect that you will use the information from Exhibit 3). Information to estimate the stock market index return Rm is given in Exhibit 2. Information to estimate the risk-free rate Rf is given in Exhibit 3, where the "Treasury Spread" is given. Rf = Rb - Treasury Spread Alternatively, a simple approximation of Rm, Rf, and Rb is to use the typical values I discussed in class. Historically Rm is about 10% over the long term, and Rb is 6-8%, and Rf is 4-5%. And the average market beta = 1.0. A variation of using such typical values is to take typical Rm and Rb and beta, and "adjust" them for what you consider to be the risk of the company. You get more marks if you use the information in Exhibits 2 and 3, but finding the discount rate is just part of total marks, and so you have to decide how much time you want to put into it. As long as you develop a "reasonable" Rwacc=r=discount rate, you will get most of the marks - refinements get you a bit extra.,Hi I could postpone the deadline, but it has to be before 9AM (Canada Vancouver time) by September 23, 2011. Could you please make it to 9Am 2011-09-23, instead of, 12:30PM? (Pleasure Craft Inc. Case analysis)


Paper#10416 | Written in 18-Jul-2015

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