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Capital structure-mercury athletic case

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Reference no: EM131444159

Capital Structure-Mercury Athletic Case 

The last page of the Mercury Athletic case mentions at least two possible sources of value creation not captured in Liedtke's base case scenario: a significant reduction in Mercury's days sales in inventory (DSI) and a possible combination of Mercury's and AGI's women casual lines. 

  • (a) Using Liedtke's base case projections, estimate the value of Mercury using a discounted cash flow approach without considering any possible synergy effect.

Base Case Assumptions

 

Marginal Tax Rate

40.0%

Debt Beta

0.0

Risk Free Rate

4.93%

Market Risk Premium

5.00%

Debt to Value ratio

20%

Cost of Debt

6.00%
  • (b) Describe the effects on Mercury's financial model if Mercury's DSI (Day Sales Inventory) is reduced by 30% to the same level as AGI's?
  • (c) Describe how you would analyze possible synergies or other sources of value not reflected in Liedtke's base case assumptions.

Reference no: EM131444159

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