Mrc Case Analysis

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Table of Content I. Executive Summary ...………………………………………………………………….. 2 II. Sensitivity Analysis...……….………………………………………………………….. 2 I. Executive Summary II. Sensitivity Analysis Scenario 1: MRC Projections 1. Total Asset Value The Book Value of total asset is $ 69,227,000 as of December 31, 1960. However, as per Discount Cash Flow Projection table (Appendix. A), the total asset value of American Rayon as of December 31, 1960 is $ 64,646,000. Market Value of Business Asset 41,058 Cash 2,564 US Government Securities 20,024 Value of Financial Investment 22,588 Total Asset Value 63,646 2. Terminal Value Terminal value based on book value of invested capital is not valid assumption because this is a backward looking method of assessing terminal value. It does not take into account future value creation of the firm. Instead, we used the FCF method where we assumed that FCF grows at a constant rate “g” after the forecast period. This method is superior to the book value method since it is forward looking. It also takes into account future value creation, as well as for uncertainties in the industry and macroeconomic factors. Alternative methods are the EBITDA multiple and the Value-Driver Formula. The EBITDA multiple applies today’s value to future EBITDA. This method could be misleading, as it accounts for growth twice. The value-driver formula is similar to the FCF method used above, however it acknowledges that growth requires investment and earning a return on that investment (RONIC – return on newly invested capital). If RONIC > WACC, the new investment is adding value to the firm, and vice versa. 3. Equity market value Vs. Equity book value (1960) Equity market value = $36.42/share * 1,851,255 = $67,422,707 Equity book value = $65,219,000 The

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