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mercury athletic footwear questions

Mercury athletic footwear. Do you regard the value you obtained as conservative or aggressive? I think if AGI can reduce the cost of capital, which will show the great synergic effect to the acquisition. we assume risk free rate is 5%, and risk premium as the historically one 4.3%. Mercury athletic footwear was acquired by the West Coast Fashion in late 2003. Target customers are urban and suburban family members aged 25 to 45. (2016, Apr 18). Small percentage is sold through website. The Charles H. Kellstadt Graduate School of Business DePaul University FIN 555: Financial Management Prof. Joseph Vu Case Study Questions: Mercury Athletic Footwear Active Gear, Inc. (AGI), a privately held footwear company, was considering acquiring Mercury Athletic, the footwear division of West Coast Fashions, Inc. (WCF), a large apparel company. – (Capital Expenditures – Depreciation) 42% of revenue from athletic shoes and balance from casual footwear. a. Don't be confused, we're about to change the rest of it. In the case, we could find some characteristics of footwear industry: (1) It is a mature, highly competitive industry marked by low growth, but stable profit margin. 3. The subordinate that Liedtke and AG intended to get was Mercury Athletic ( MA ) . Revenue. Liedtke thought geting Mercury would approximately duplicate AG’s gross. WCF has acquired Mercury during its strategic expansion plan. Athletic shoes developed from high-performance footwear to athletic fashion wear. (7) Main sale channels are department stores, independent specialty retailers, sporting goods stores, boutiques and wholesalers. AGI can improve its asset efficiency by investing in the development of its inventory management system. 14.8% For cost of capital, we know the debt ratio is 20%, and cost of debt is 6%, we need to find the cost of equity. Outsource manufacture in China. 42% Athletic 58% Casual. Casual shoes focus on mainstream market. The outcome of this investment would be a reduction in the number of inventory days from 61.1 days to 42.5 days. They target the global youth culture of alternative music, TV, and clothing. To my surprise, the reinvestment rate is not sensitive to the outcome, I have not figure out the reason. Your name. Mercury Athletic Essay Sample. (3) Except some global footwear brands, athletic and casual shoes market is still fragmented, which means each company could has its own market because of its characteristic. And he estimate debt/equity ratio remains the same as AGI, that is also unreasonable, for it is not possible to change that in short period. (1)first of all, to calculate the cash flows from 2007 to 2011, Net Income 5. Good at inventory management in the industry. (3) Under alternative method, the expected g is much lower as 2.6%, the risk free rate is also a medium one, and the risk premium is a historical one, which is much higher than recent risk premium in USA. The case focuses on the strategic and financial evaluation, The case provides the opportunity to forecast the cash flows associated with the proposed, acquisition and to value those projections using discounted cash flows methods as well as, multiples. AGI is a profitable company; however, its size is not large enough to cater for market expansion opportunities. (5). However, historical data is usually useless for future. Price cuts and promotion in apparel line hurts operating margins but helped to the growth in sales. Report "mercury athletic footwear case solution" Please fill this form, we will try to respond as soon as possible. And these two companies have some similar factors, such as : (1) They could use the same sale channels after acquisition, and internet channel could be enlarged. Course Hero is not sponsored or endorsed by any college or university. (6) Inventory management and production lead times are critical for the success. Boosta Ltd - 10 Kyriakou Matsi, Liliana building, office 203, 1082, Nicosia, Cyprus. Mercury Its revenue on 2006 is $431.1 million and total asset is $270.6 million on 2006, Operating income (EBIT) is $42.3 million and net income is $25.9 million. 79% Athletic 21% Casual. MERCURY ATHLETIC FOOTWEARProblem statement:West Coast Fashions, Inc a large business of men’s and women’s apparel decided todispose of one of their segments; Mercury Athletic. Executive Summary Great pressure from suppliers and competitors caused some deterioration of basic performance for AGI during 2004–2006. 1. (2) Performance of individual firms could be quite volatile for they need to anticipate and exploit fashion trend. Why or why not? Then the cost of capital will be 10.6%. also offered here. Description. Don’t waste Your Time Searching For a Sample, Get Your Job Done By a Professional Skilled Writer. As such, you are to assess your level of interest in pursing the acquisition of Mercury Athletic Footwear (MAF), which is being divested by West Coast Fashions, Inc. (WCF). Are they appropriate? Step 4 - SWOT Analysis of Mercury Athletic: Valuing the Opportunity. In order to summarize, due to AGI’s small size, there is a strong risk of being overtaken by the other giant players in the market therefore, if it acquires Mercury, the risk will be minimized and there is a strong opportunity that the company will grow steadily. Mercury Athletic Footwear Case Solution QUESTION 1 If we look at the valuation of Mercury for the part D and part F, then a difference could be seen between the enterprise values. (3) The product segments are almost the same, which means that there should be little work to do after acquisition in product adjustment. Besides, smaller firms tend to be more volatile than others, which we could find the same characteristics in these two firms we are talking about. Four main segments: men’s and women’s athletic and casual footwear. Revenue contribution And sometimes there are even negative correlations between growth rates in the two periods. 21,740 We use cookies to give you the best experience possible. The, potential acquisition would roughly double the size of AGI, and improve its negotiation, position with suppliers and retailers. As for debt ratio and expect g, it is not so sensitive, but has some influence. (2) then we need to calculate the terminal value. Below are some characteristics for Mercury and AGI we need to focus on during the analysis: AGI Should AGI purchase Mercury? Mercury athletic footwear 1. Mainly sold in department stores, specialty retailers, wholesalers and independent distributors. Revenue and EBITDA were 431.1 million and 51.8 million.. Download mercury athletic footwear case solution Comments. Submit Close. For making a decision regarding the acquisition being appropriate or not, the facts and side effects of acquisition should be considered first. Reason. Why or why not? Mercury Potential to double revenues Increase leverage with manufacturers Increase long run growth rate Expand presence with key retailers and distributors. o Products. (4) Thanks to the profitable ability of AGI, it is much easier to make a better financial performance of Mercury. By continuing we’ll assume you’re on board with our cookie policy. In his preliminary valuation and analysis, Liedtke came up with a basis of making financial projections based on the revenue forecasts and operating income for all the four Mercury’s major segments namely; the men’s athletic footwear, men’s casual footwear, women’s athletic footwear and … $470,285mn. The industry is same, products are similar, markets are similar, greater ability to merge each other’s operating efficiencies and improve deficiencies, therefore it is evident that these factors confirm that Mercury is … How would you recommend modifying them? Active Gear was one of the most successful firms in terms of profitability, in the footwear industry. Email. (4) Alternative method to calculate cost of capital, then value of Mercury: We have learnt from Exhibit 3 of peer companies information in this business, we can calculate cost of capital in alternative ways. a footwear company. We can find during the period from 2007- 2011, the growth rate of net income is not stable, so we assume from 2012, Mercury enter into stable and slow development stage. An Overview of the Problem John Liedtke, the head of business development for Active Gear, Inc. wanted to acquire Mercury Athletic, footwear division of WCF. University of New South Wales • FINS 3625, University of Maryland, College Park • BUFN 750, Case Study Questions - Parts I and II - September 2011. Mercury was purchased by WCF in hopes to increase business revenue however this was not the case. 25,158 Mercury Athletic Footwear. Additional materials, such as the best quotations, synonyms and word definitions to make your writing easier are Had poor performance after acquisition by WCF. How would you recommend modifying them? . Get a verified writer to help you with ?Mercury Footwear Questions Mercury had revenues of $431.1 million and EBITDA of $51.8 million during 2006. Forecast the Future FCFs And sometimes, analyst should be better than the historical growth. We believe that Mercury is an appropriate target for AGI since an acquisition can be an excellent growth opportunity. Revenue and operating income were 470.3 million and 60.4 million in 2006. The acquisition of Mercury Athletic Footwear can create business synergies. (2). Mercury Athletic Footwear - Acquisition Analysis ACTIVE GEAR COST OF CAPITAL ASSUMPTION Tax Rate Cost of Debt Risk Free Rate Expected Market Return Market Risk Premium Asset βeta Debt-to-Value Ratio Debt-to-Equity Ratio Equity Beta 40.0% 6.00% 4.93% 10.43% 5.50% 20.0% 25.0% 0.970 CASH FLOW AND OPERATING ASSUMPTIONS (2) They could combine manufacturers to get a powerful bargain in suppliers. Mercury Background 2003 - acquired by West Coast Fashions (WCF) Attempted brand extension through apparel line Business stalled Mercury CEO eager to return exclusively to footwear Four footwear product lines Men’s/Women’s athletic Men’s/Women’s casual 2006: Revenue - $431.1 million EBITDA - $51.8 million Mercury was purchased by WCF in hopes to increase business revenue however this was not the case. (5). ?Mercury Footwear Questions. Valuing Mercury Athletic. Retrieved from http://studymoose.com/mercury-footwear-questions-essay, Copying content is not allowed on this website, Ask a professional writer to help you with your text, Give us your email and we'll send you the essay you need, Please indicate where to send you the sample. In the case, we could find that Liedtke used historical averages to assume the overhead-to-revenue ratio. And since the revenue is almost the same, it is a good choice to merge with Mercury, which means that revenue would be doubled after acquisition. Its mother company decided to extend the brand by creating complementary line of apparel. We assume the cost of equity equal return on equity, we can calculate the historical return on equity from 2007- 2011 is as below, Return on equity, 12.8% The cost of equity will be 11.5%. And just as we mentioned in the question 1, revenue may be doubled after acquisition, it just fits the theory that it is difficult to maintain historical growth rates as firms double or triple in size. Mercury Athletic Footwear: Valuing the Opportunity. Get step-by-step explanations, verified by experts. $431,121mn % Revenue Product wise. -17,192 I think my valuation is conservative, the reason is as follows: (1) Under the basic method, the expected g is much lower than the average g from 2007-2011, even lower the lowest one within this period and the reinvested rate is lower than the average one from 2007-2011 and also not a high one in general business, and we can also found the EBIT Margin is lower than the average one in that business. MERCURY ATHLETIC FOOTWEAR Problem statement: West Coast Fashions, Inc a large business of men’s and women’s apparel decided to dispose of one of their segments; Mercury Athletic. In my opinion, the value calculated via alternative method will be more reliable. Some studies found there is little evidence that firms grew fast continued to grow fast in the next period. Total value of Mercury will be 247,479, which is the estimate Firm value of Mercury under the alternative method. increase its purchase with contract makers and spread out its presence with cardinal retail merchants and distributers. Mercury Athletic Footwear designed and distributed branded athletic and casual footwear, principally to the youth market. For a limited time, find answers and explanations to over 1.2 million textbook exercises for FREE! Revenue growth. We can get the result. Do the SWOT analysis of the Mercury Athletic: Valuing the Opportunity . Its main customers are not interest in its apparel. 26,867 Sales growth is lower than the average because of there is little discount in price. Get this from a library! As for synergy, the management of inventory has not shown great synergic effect to the outcome, for from 2007 to 2011, inventory level has not reduced. Because of the poor performance, it was decided to sold. And it faced with some problems in the consolidation of manufacturers. (8) Most of the firms outsource the manufactures in China. Focus on the following - Zero down on the central problem and two to five related problems in the case study. Don't waste time. Athletic Footwear Market Overview. = Free Cash flow to Firm Therefore, based on the above analysis, we think that it is not reasonable to use historical data for future projections. 3. 4 a. Estimation of the weighted average cost of capital 5 b. It takes small size as its competitive disadvantages. Mercury Footwear Questions - The Charles H Kellstadt Graduate School of Business DePaul University FIN 555 Financial Management Prof Joseph Vu Case, 8 out of 13 people found this document helpful, The Charles H. Kellstadt Graduate School of Business, Case Study Questions: Mercury Athletic Footwear, Active Gear, Inc. (AGI), a privately held footwear company, was considering acquiring, Mercury Athletic, the footwear division of West Coast Fashions, Inc. (WCF), a large apparel, company. Active Gear had recently increased its supplier concentration to improve its negotiating position because AGI’s small size … Student Instructions, Required Analysis and Questions Your team is to place themselves in the role of John Liedtke, head of business development for Active Gear, Inc. (AGI). $42,299mn. Get a verified writer to help you with ?Mercury Footwear Questions, (4) In this market, it is important for the brand image, specialized engineering for performance and price. Is Mercury an appropriate target for AGI? Inventory management performance is worse than the average level. We have get the cash flows of 2007-2011 and terminal value in 2011, and the cost of capital is 12.7%, we can get the respective present value of them and reach the total present value 226,514, which is the estimate Firm value of Mercury. Estimate the value of Mercury using a discounted cash flow approach and Liedtke’s base case projections. (3) Except some global footwear brands, athletic and casual shoes market is still fragmented, which means each company could has its own market because of its characteristic. Introducing Textbook Solutions. Therefore Unlevered beta for business= 1.35 We know the D/E ratio and tax rate of Mercury, then get levered beta for Mercury =1.52. For they need to anticipate and exploit fashion trend for they need to calculate the flow! Is not sponsored or endorsed by any college or university make certain you do possess. Double revenues increase leverage with manufacturers increase long run growth rate Expand presence with key retailers and.... 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