Mercury Athetic

Net Present Value of hydrargyrum Athletic Enterprise The results of my pecuniary analysis based on the Free money Flow Method considering the base case of fiscal projections and assumptions for atomic number 80 Athletic Footwear collated and developed by John Liedtke indicate that that the project to acquire Mercury Althletic has a positive net present value at $243,025 (in thousands) given by PV(FCF)=86,681+ PV (Terminal Value) =156,343 which is also great than the recommended acquisition price of $186,216 (in thousands),therefore Active Gear Inc. hould proceed with the acquisition of Mercurys operation. Free Cash Flow The free cash flow from Mercurys business operations was determined apply the base case for the consolidated run income, expenses, tax position and depreciation to determine the net operating profits later on tax (NOPAT) for the years 2007-2011. Free cash flow was then calculated victimisation the formula (FCF= NOPAT + Depreciation-? Net Working Capital -?Fi xed Assets) which was evaluated at $21,240, $26,727, $ 22,097, $25,473 and $29,545 for the years 2007, 2008, 2009, 2010 and 2011 respectively. The Cost of Debt and the Cost of rightfulness The next step was to determine the coast of debt, using the assumptions made by Mr. Liedtke which outlines a tax rate of 40%, the cost of debt of 6% for a leverage of 20% debt. The after-tax cost of debt (RD) was determined to be 3. % using RD =(R*(1-Tax Rate), where RD =after rate cost of debt, R= cost of debt The cost equity estimated using the CAPM approach, Surfside Footwear was selected as a comparable company since its EBIT Margin of 9. 3% was the same as the average consolidated EBIT Margin of Mercury Athletic for period 2004-2006, the Equity Beta for Surfside from Exhibit 3 was 2. 13. The risk free was determined to be 4. 69% using US Treasury Bills Yield given in the case Footnotes on varlet 7. The 5 year T-bill yield was selected as