What is propulsion division, Financial Econometrics

In May 2003, Gencorp acquired Sequa Corp.'s propulsion subsidiary ARC for $133million in cash and $11 million in transactions costs.

Table below lists selected information about ARC at the time of acquisition (‘000s):
Sales $ 300,000
Operating income (loss) $ 8,000
Total assets $ 250,000
Capital expenditures $ 20,000
Depreciation and amortization $ 25,000
Intangible Assets (process technology) $ 20,000

Over the next three years,

a. ARC sales will increase by 5% each year (with or without the merger). Part of the reason for the merger is Gencorp's expectation that ARC would achieve this growth at the expense of Gencorp's propulsion division (with or without the merger).

b. Operating income will remain as the same fraction of sales.

c. Capital spending needs to be maintained at current levels and depreciation will remain constant. But, the acquisition lowers Gencorp's capital spending, without any further loss in sales, by $5,000 a year, for the next three years. Assume that the lowered capital expenditures will have no impact on depreciation.  After three years,

d. free cash flows to the firm (ARC) are expected to grow at a constant rate of 3% forever, with or without the merger. No impact on Gencorp after year 3.

The average beta for the industry is 1.5, with a market value based debt ratio of 50%. As part of the combined firm the debt ratio can be increased to 60% without any change in the pre-tax cost of debt of 7.5%. Market risk premium is 4% and risk- free rate is 5%. Marginal tax rate is 30%. Is the acquisition beneficial for Gencorp's shareholders?

Posted Date: 5/8/2013 2:00:00 AM | Location : United States

Related Discussions:- What is propulsion division, Assignment Help, Ask Question on What is propulsion division, Get Answer, Expert's Help, What is propulsion division Discussions

Write discussion on What is propulsion division
Your posts are moderated
Related Questions

Q. Explain Moderate working capital policy? All the non-current assets and permanent asset are financed by long-term finance. The temporary fluctuating assets financed by short

Q. What do you meant by Overtrading? When a company is trading large volumes of sales very quickly, it may also be generating large amounts of credit sales and consequently lar

Differences in working capital for different industries   Manufacturing Retail Service Inventories Hig

You decide to max-out your annual investment into your Individual Retirement Account and invest $6,000 at the end of each year for the next 17 years. At the end of this investment

Q. What do you mean by Acquistions - takeovers? Acquistions / takeovers: an essential feature of the merger through the absorption as well as consideration in the combination t

Question The variance of Stock A is .004, the variance of the market is .007 and the covariance between the two is .0026. What is the correlation coefficient?

Question If the economy booms, RTF, Inc. stock is expected to return 10%. If the economy goes into a recessionary period, then RTF is expected to only return 4%. The probabilit

Could you please explain me how to determine the marketing pricing of a industril products? For explam a component in air conditioning. No standard parts in marketing.

Q. Show the Quick ratio or acid test? Quick ratio = Current assets less inventories/Current liabilities (times) This ratio measures immediate solvency of a business as it re