Explore how entrepreneurs make financing decisions when they are faced with timing issues and low bargaining power versus VCs. Mindersoft Stephen R. Chapin Jr., the CEO of a new startup, Mindersoft, Inc., must evaluate an offer from a venture capital firm in March 1997. The firm, Novak Biddle Venture Partners, offers to invest $2.0 million for 40 percent of the company resulting in a $5 million post-money valuation for the firm. He is concerned that the valuation offered by the venture capitalist is too low. He believes that the premoney valuation of the company should be at least $10 million based on the potential profitability of the company and the successful efforts to date in lining up several key sponsorships with national retailers.
My evaluation of Nike’s share price is based on Joanna Cohen’s analysis. In the following paragraphs I am going to point out the mistakes that Joanna has made and also give my suggestions in the WACC calculation First of all, for as much as over 95% of Nike’s revenue comes from sports-related business, I do agree with Joanna’s assumption of single costs of capital. Although cost of capital of non-Nike branded product may different from its main sport business, it has a minor effect on the cost of capital of the company as a whole. However, I found that she has made a few mistakes in calculating debt and equity weights and cost of debt. Debt and Equity Weights The first mistake in Joanna’s calculation is that the weights of Nike’s debt and equity should be based on the market value rather than book value mixes of Nike’s debt and equity.
(2012). J.C. Penney’s risky new pricing strategy. Harvard Business Review. Retrieved from ProQuest. Review the article: Is your own buying behavior influenced by coupons and sales?
Estimate the after-tax return on capital for the operating portion of this period (Years 3-12) C. Based upon the after-tax return on capital, would you accept or reject this project? A. Operating Income for Nike Apparel: In years 3 and 4, the project will lose money but Nike will offset these losses against other profits to save taxes. There are a number of allocation mechanisms that can be used to compute operating income, and the return on capital is affected by decisions on allocation. For instance, I allocated the entire investment in the distribution system expansion to this project.
The case serves to motivate the following teaching objectives: • Introduce the Modigliani-Miller intuition of capital structure irrelevance; • Establish how the cost of equity is affected by capital structure decisions by defining financial risk and introducing the levered-beta capital asset pricing model (CAPM) equation; • Discuss interest tax deductibility and the valuation tax shields; • Explore the importance of debt capacity in a growing business. Suggestion for Advance Assignment to Students Students may consider the following study questions: 1. In what ways can Susan Collyns facilitate the success of CPK? 2. Using the scenarios in case Exhibit 9, what role does leverage play in affecting the return on equity (ROE) for CPK?
That is, what aspects of the firm’s activities should Koh focus on especially? 4. What is Star River’s weighted-average cost of capital (WACC)? What methods did you use to estimate WACC? What are the key assumptions that especially influence WACC?
Midland Energy Resources, Inc.: Cost of Capital-Case Solution Ratings: (2)|Views: 995 |Likes: 3 Published by Rajesh Ranjan 1. Calculate Midland's corporate WACC. Clearly indicate your assumptions. Is Midland's choice of expected market risk premium appropriate? If not, what recommendation would you make and why?
CASE STUDY The Alcatel-Lucent Merger – What went wrong? It did not take long after the merger for things to start going wrong for Alcatel-Lucent CEO Patricia Russo, who opted to leave the vendor last month after admitting she could no longer work with fellow board resignee chairman Serge Tchuruk. MICROSCOPE, August 11-17, 2008 (Scroxton, 2008) It seems that this deal was not meant to happen. The original merger negotiations between Alcatel of France, the communications equipment maker based in Paris, and Lucent Technologies, the U.S. telecommunications giant, took place in 2001. However, the finely detailed deal collapsed on May 29, 2001, after the two companies could not agree on how much control the French company would have.
[pic] ADIDAS IN 2008: HAS CORPORATE RESTRUCTURING INCREASED SHAREHOLDER VALUE? WRITTEN CASE REPORT Subject: BUAD 340 – Strategic Management I Submitted to: xxx, Senior Partner Submitted by: xxx, President/CEO xxx, VP Finance xxx, VP Marketing xxx, VP Operations xxx, VP HR Date Submitted: March 29, 2011 Executive Summary Jinka Consulting has conducted a thorough analysis of Adidas AG and has defined the problem and the consequences of the main strategic issues Adidas is facing. The main issue that Jinka Consulting is addressing is how to remain competitive with Nike, who is currently outperforming Adidas, and how to eventually overtake the number one spot by gaining and maintaining market share. There are a number of internal and external factors that are affecting the operations of Adidas, such as gaining market share over Nike, and capitalizing on international expansion opportunities and acquisitions. Adidas also needs to address their decreasing liquidity to ensure that the working capital is available to act upon any opportunities.
The Cave Hill School of Business Executive Masters in Business Administration Topic: The Application of Price Discrimination to Enhance Profitability Identification Number: 20053976 Number of words: 4,370 Number of Pages: 18 Course Name: Managerial Economics Course Code: GEMA6320 Facilitated by: Dr. Justin Robinson TABLE OF CONTENTS Executive Summary 3 1.0 Introduction and Background 4 2.0 Problem Statement 5 3.0 Methodology 5 4.0 Literature Review 6 4.1. Laws Targeting Price Discrimination 6 4.2 The Three Types of Price Discrimination 7 4.3. How can Price Discriminate? 8 4.4. How can Price Discrimination be used by firms to enhance profitability?