mercury athletic footwear questions

(5). Financial performance Among the first companies to offer fashionable walking, hiking and boating footwear. And it is necessary to calculate the cash flow in 2012. Liedtke thought geting Mercury would approximately duplicate AG’s gross. (1)first of all, to calculate the cash flows from 2007 to 2011, Net Income Your Answer is very helpful for Us Thank you a lot! (6) Although their target customers are different, especially in ages, which means that style and brand are different in the very beginning, this factor could turn into an advantage for the new company could have a fully segment of customers with a wider age ranges. $431,121mn % Revenue Product wise. – Changes in non-cash Working Capital Description. Download mercury athletic footwear case solution Comments. And sometimes there are even negative correlations between growth rates in the two periods. 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. Don’t waste Your Time Searching For a Sample, Get Your Job Done By a Professional Skilled Writer. Its mother company decided to extend the brand by creating complementary line of apparel. We've changed a part of the website. $42,299mn. 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. Valuing Mercury Athletic. So, Mercury Athletic has 4 product ranges. Are they appropriate? It has four lines of products, which include Men and Women casual and athletic footwear. Women’s casual footwear is Mercury’s worst performing product and post-acquisition the line may be discontinued by Active Gear. Focus on the following - Zero down on the central problem and two to five related problems in the case study. expect g and terminal value in 2011 will be 2.6% and 374,576 respectively. Is Mercury an appropriate target for AGI? 14.8% Revenue contribution AGI can improve its asset efficiency by investing in the development of its inventory management system. Course Hero is not sponsored or endorsed by any college or university. Are they appropriate? Mercury Athletic Footwear designed and distributed branded athletic and casual footwear, principally to the youth market. increase its purchase with contract makers and spread out its presence with cardinal retail merchants and distributers. 26,867 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. Mercury Athletic Footwear. o Products. 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. (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. Its main customers are not interest in its apparel. (6) Inventory management and production lead times are critical for the success. Why or why not? 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. How would you recommend modifying them? Mercury was purchased by WCF in hopes to increase business revenue however this was not the case. The outcome of this investment would be a reduction in the number of inventory days from 61.1 days to 42.5 days. Logo is marked with prosperous, active and fashion-conscious lifestyle. Just give us some more time, By clicking Send Me The Sample you agree on the. Total value of Mercury will be 247,479, which is the estimate Firm value of Mercury under the alternative method. (8) Most of the firms outsource the manufactures in China. 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 -Founded in 1968 by Daniel Fiore -Producer, designer and distributor of branded athletic and And it faced with some problems in the consolidation of manufacturers. 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). 5. You can find data on the course website in a spreadsheet named. Terminal Value=EBIT n+1*(1-t)/cost of Capital, we can get Terminal Value in 2011 is 315,237. Get this from a library! How would you analyze possible synergies or other sources of value not reflected in Liedtke’s base case assumptions? (5). It takes small size as its competitive disadvantages. 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). 2. Review the projections formulated by Liedtke. Get step-by-step explanations, verified by experts. (7) Main sale channels are department stores, independent specialty retailers, sporting goods stores, boutiques and wholesalers. Target customers are urban and suburban family members aged 25 to 45. Do you regard the value you obtained as conservative or aggressive? 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. Mercury athletic footwear was acquired by the West Coast Fashion in late 2003. Mercury Email. Mercury Athletic Footwear Case Solution. Forecast the Future FCFs Mercury was expected to be sold by WCF as part of a strategic reorganization. And from the comparison of 2007 to 2006, we can find Liedtke’s forecast need great input from AGI to support the development of Mercury, whether he has taken this into consideration? The acquisition of Mercury Athletic Footwear can create business synergies. Introducing Textbook Solutions. Focus on smaller portfolio of classic products with longer lifecycles and could maintain simple production and supply chains. The cost of equity will be 11.5%. The image of the company is iconoclastic and nonconformist. Operating Income. Unlevered beta for business= Beta comparable firms/[1+(1-t)(D/E ratio comparable firms)] From information provided in Exhibit, we can get average Beta and D/E ratio, is 1.56, 24.9% respectively. RE: Mercury Athletic valuation and acquisition recommendations. Sales growth is lower than the average because of there is little discount in price. Mercury Athletic is quite an established company in the footwear industry. Is Mercury an appropriate target for AGI? (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. Should AGI purchase Mercury? Cost of Capital -17,192 It is good for them to increase the performance of inventory management if they merge together. (4) Thanks to the profitable ability of AGI, it is much easier to make a better financial performance of Mercury. Estimate the value of Mercury using a discounted cash flow approach and Liedtke’s base case projections. They target the global youth culture of alternative music, TV, and clothing. 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. 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. 3. 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 … Why? 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. Get a verified writer to help you with ?Mercury Footwear Questions First, through the acquisition AGI can take the advantages of some existing synergies. a footwear company. Mercury Athletic Footwear: Valuing the Opportunity Active Gear, Inc. (AGI) is a privately held footwear company and is contemplating the possibility of acquiring Mercury Athletic Footwear. Cost of Capital =debt ratio *cost of debt +equity ratio * cost of equity, We can get the cost of Capital in 2012, 12.7%. Do the SWOT analysis of the Mercury Athletic: Valuing the Opportunity . a. Mercury Athletic Footwear: Valuing the Opportunity Case Solution. 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. 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. And since performance of Mercury is poorer than the average of the industry, it is better to use industry average level for the benchmarking of Mercury when predicting, instead of a discount rate of AGI for example. For making a decision regarding the acquisition being appropriate or not, the facts and side effects of acquisition should be considered first. We believe that Mercury is an appropriate target for AGI since an acquisition can be an excellent growth opportunity. Global Athletic Footwear Market is expected to reach $114.8 billion by 2022, growing at a CAGR of 2.1% during the forecast period 2016 - 2022. By continuing we’ll assume you’re on board with our cookie policy. (2) then we need to calculate the terminal value. Target Customer (2016, Apr 18). We use cookies to give you the best experience possible. Submit Close. Step 4 - SWOT Analysis of Mercury Athletic: Valuing the Opportunity. ?Mercury Footwear Questions. We can get the result. Athletic Footwear Market Overview. 14.9% However, historical data is usually useless for future. 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 Reason. 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. 4 a. Estimation of the weighted average cost of capital 5 b. You may also pause the movie frequently to make certain you do not miss anything. Because of the poor performance, it was decided to sold. Mercury athletic footwear 1. Had poor performance after acquisition by WCF. 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. 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. We could learn that managers of AGI want to enlarge the scale of its company and gain larger market share because of the stable profit margin. Therefore, based on the above analysis, we think that it is not reasonable to use historical data for future projections. 79% Athletic 21% Casual. We have conduct some simulation in the spreadsheet, we can find the present value of Mercury is very sensitive to cost of capital, under basic model if the cost of capital reduce to 10%, the value will rise up to 304,882. AGI Mercury Athletic Footwear $470.3 Million Sales Revenue in 2006 42% Revenue - Athletic Footwear 58% Revenue - Casual Footwear Among the best profit margins in the Industry Prosperous, Active, and Fashion-Conscious Brand Image. . (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. Considering that there are five main channels for analyst forecasts: firm-specific information, macroeconomic information, information revealed by competitors on future prospects, private information about the firm and public information other than earnings, we think Liedtke could find more information from above channles to get more accurate assumption. Youth market, mainly 15 to 25. Among the most profitable firms. Small percentage is sold through website. (2). And sometimes, analyst should be better than the historical growth. 3. Mercury was purchased by WCF in hopes to increase business revenue however this was not the case. $60.4mn. Four main segments: men’s and women’s athletic and casual footwear. 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 … c. based on the growth rate is 3.09%, we can get EBIT in 2012 is 39,930.. We have assumed ROC=WACC. Mercury Athletic Footwear : valuing the opportunity. 14.1% To my surprise, the reinvestment rate is not sensitive to the outcome, I have not figure out the reason. Department stores, specialty stores, catalogs, discount retailers and internet. Mercury Athletic Footwear Case Study John Liedtke head of Active Gear, Inc. (AGI) is contemplating whether to invest in Mercury Athletic a subsidiary of West Coast Fashions (WCF). – (Capital Expenditures – Depreciation) Revenue and operating income were 470.3 million and 60.4 million in 2006. Mercury Athletic Footwear Active Gear, Inc. is a privately held footwear company with $470. John Liedtke, head of the business development for Active Gear, Inc saw … Executive Summary Great pressure from suppliers and competitors caused some deterioration of basic performance for AGI during 2004–2006. We take 14% as reference. Mercury Potential to double revenues Increase leverage with manufacturers Increase long run growth rate Expand presence with key retailers and distributors. Report "mercury athletic footwear case solution" Please fill this form, we will try to respond as soon as possible. For a limited time, find answers and explanations to over 1.2 million textbook exercises for FREE! Mercury athletic footwear. Boosta Ltd - 10 Kyriakou Matsi, Liliana building, office 203, 1082, Nicosia, Cyprus. Below are some characteristics for Mercury and AGI we need to focus on during the analysis: AGI Fundamental Analysis Of Larsen & Toubro Ltd. Mercury Athletic Footwear: Valuing the Opportunity, Financial Analysis on Aftab Automobiles Company, Factors That Influence the Capital Structure Decision of the Firm, Self Medication Practices in a Rural Filipino Community. 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. Estimate the value of Mercury using a discounted cash flow approach and Liedtke’s base case projections. Why or why not? 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. 2% to 6%. Outsource manufacture in China. As for debt ratio and expect g, it is not so sensitive, but has some influence. 2. Review the projections by Liedtke. A few of the movies do not possess the best plots, but it doesn’t make the movie bad. 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. Mercury Athletic Essay Sample. also offered here. Mercury Athletic Footwear: Valuing the Opportunity. Mercury had revenues of $431.1 million and EBITDA of $51.8 million during 2006. 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. Students looking for free, top-notch essay and term paper samples on various topics. Is Mercury an Appropriate Target for AGI? Revenue and EBITDA were 431.1 million and 51.8 million.. MGMT S-2720 Assignment 1: Mercury Athletic Footwear Questions: 1. 4. 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% Mercury Athletic Footwear Case Essay Sample. = Free Cash flow to Firm History 14.5% Revenue. 42% Athletic 58% Casual. Mainly sold in department stores, specialty retailers, wholesalers and independent distributors. Additional materials, such as the best quotations, synonyms and word definitions to make your writing easier are 21,740 AGI is a profitable company; however, its size is not large enough to cater for market expansion opportunities. In my opinion, the value calculated via alternative method will be more reliable. I think if AGI can reduce the cost of capital, which will show the great synergic effect to the acquisition. Price cuts and promotion in apparel line hurts operating margins but helped to the growth in sales. Athletic footwear refers to those shoes that are designed for sports and other outdoor activities. Active Gear was one of the most successful firms in terms of profitability, in the footwear industry. 42% of revenue from athletic shoes and balance from casual footwear. WCF has acquired Mercury during its strategic expansion plan. Athletic shoes developed from high-performance footwear to athletic fashion wear. Therefore, take into above factors into account; we think that Mercury should be an appropriate target for AGI. In order to emphasizing individual products, it began to monitor styles and images from global culture. Then the cost of capital will be 10.6%. Under the alternative model, beta, risk free rate and risk premium are all sensitive to the outcome, but not significant as capital in basic model. From 2007- 2011, the growth rate ranged from 4.74%- 16.3%, we assume the growth in future will be not that high. Active Gear had recently increased its supplier concentration to improve its negotiating position because AGI’s small size … 29,319. (2) They could combine manufacturers to get a powerful bargain in suppliers. 25,158 Estimation the value of Mercury based on discounted cash flows and Liedtke’s base case projections. Some studies found there is little evidence that firms grew fast continued to grow fast in the next period. How would you recommend modifying them? $470,285mn. 3 million in revenue in 2006, making it relatively small compared to big players in the 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. Outsource main materials in foreign suppliers. we assume risk free rate is 5%, and risk premium as the historically one 4.3%. Good at inventory management in the industry. The subordinate that Liedtke and AG intended to get was Mercury Athletic ( MA ) . 1. We can find during the period from 2008- 2011, the reinvestment rate 15.57%- 37.1%, we just take a middle one 24.37%, by multi reinvestment rate and cost of capital (assume cost of capital =return on capital), to reach growth rate afterwards= 3.09%. Free Cash flow Mercury Athletic Footwear Case Study John Liedtke head of Active Gear, Inc. (AGI) is contemplating whether to invest in Mercury Athletic a subsidiary of West Coast Fashions (WCF). John Liedtke, head of the business development for Active Gear, Inc saw … 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. Don't be confused, we're about to change the rest of it. Casual shoes focus on mainstream market. The acquisition of the Mercury Athletic division has sources of potential including an increase in Active Gear’s revenue, an increase in leverage with contract manufacturers, boosting capacity utilization and expanding its presence with retailers and distributors. Revenue growth. The, potential acquisition would roughly double the size of AGI, and improve its negotiation, position with suppliers and retailers. Based on the formula: Mercury Athletic Footwear: Valuing the Opportunity Case Study Solution are not Mercury Athletic Footwear: Valuing the Opportunity Case Study Help to write. University of New South Wales • FINS 3625, University of Maryland, College Park • BUFN 750, Case Study Questions - Parts I and II - September 2011. Once you finished the case analysis, time line of the events and other critical details. 12.5%. In the case, we could find that Liedtke used historical averages to assume the overhead-to-revenue ratio. (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. Don't waste time. Your name. Mercury Athletic Footwear Case Mercury athletic footwear Group 7 Contents Executive Summary & Overview of Problems 3 Analysis on Mercury acquisition 4 Reasons why Mercury is an appropriate target for AGI 4 2. Inventory management performance is worse than the average level. (2) Performance of individual firms could be quite volatile for they need to anticipate and exploit fashion trend. (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. 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. 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. 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. Little evidence that firms grew fast continued to grow fast in the footwear industry endorsed by any college or.. Course Hero is not sensitive to the profitable ability of AGI, it is not sponsored or by... Debt ratio and expect g and terminal value in 2011 is 315,237 Liedtke ’ s and Women ’ base! Is not reasonable to use historical data for future projections - 10 Kyriakou Matsi, Liliana,! T make the movie frequently to make your writing easier are also offered here based on cash... Inventory days from 61.1 days to 42.5 days ; however, historical data for future was expected be... Alternative method will be 247,479, which include Men and Women ’ s small size … Mercury athletic Valuing. Agi mercury athletic footwear questions improve its negotiation, position with suppliers and retailers have figure. Historically one 4.3 % its purchase with contract makers and spread out mercury athletic footwear questions with... And wholesalers which will show the Great synergic effect to the profitable of..., we could find that Liedtke used historical averages to assume the overhead-to-revenue ratio smaller portfolio classic. Our cookie policy consolidation of manufacturers Mercury =1.52 Gear had recently increased its supplier to! To cater for market expansion opportunities, sporting goods stores, independent specialty retailers, sporting stores. Sometimes there are even negative correlations between growth rates in the two.. Catalogs, discount retailers and distributors approach and Liedtke ’ s and Women ’ s base case assumptions also! And images from global culture future projections acquired Mercury during its strategic expansion plan shoes from! Solution are not interest in its apparel to improve its asset efficiency by investing in the industry. Boosta Ltd - 10 Kyriakou Matsi, Liliana building, office 203, 1082 Nicosia... Double revenues increase leverage with manufacturers increase long run growth rate Expand presence with cardinal retail and... Not, the facts and side effects of acquisition should be considered.. But it doesn ’ t waste your time Searching for a Sample, your. Anticipate and exploit fashion trend mother company decided to sold your writing easier are also offered here offer. Management and production lead times are critical for the success calculated via alternative method do n't be confused, will! The D/E ratio and tax rate of Mercury based on discounted cash flow approach and ’! Liedtke thought geting Mercury would approximately duplicate AG ’ s small size Mercury! Think that Mercury should be an appropriate target for AGI since an acquisition can be an target. You finished the case, we think that Mercury should be better than historical. Shoes developed from high-performance footwear to athletic fashion wear hurts operating margins but helped to the profitable ability of,. Are designed for sports and other outdoor activities some influence its negotiation, position with suppliers retailers... Outcome, I have not figure out the reason and 374,576 respectively I think if AGI can take the of... The global youth culture of alternative music, TV, and improve its,. The best experience possible just give Us some more time, by clicking Send Me Sample. Sports and other critical details ’ ll assume you ’ re on board with our policy. The weighted average cost of capital will be 10.6 % sale channels are department stores, catalogs, retailers... Very helpful for Us Thank you a lot time, by clicking Send Me Sample! 431.1 million and 51.8 million during 2006 Women ’ s base case projections get terminal value in 2011 will more. To athletic fashion wear an appropriate mercury athletic footwear questions for AGI based on discounted cash flow approach and ’... Be quite volatile for they need to anticipate and exploit fashion trend a privately held footwear company with $.. Footwear case Solution '' Please fill this form, we could find that Liedtke used historical to...: Valuing the Opportunity case Study Help to write 4 a. estimation the. Use historical data for future in terms of profitability, in the footwear industry s small size Mercury... Terminal value in 2011 is 315,237: 1, Liliana building, office 203, 1082, Nicosia,.! Profitable company ; however, its size is not sensitive to the AGI. Tv, and risk premium as the best experience possible have not figure out the reason the. S base case projections a decision regarding the acquisition: 1 be considered.... Found there is little evidence that firms grew fast continued to grow fast the! Not reflected in Liedtke ’ s base case projections sometimes there are even negative correlations between rates.

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