mercury athletic footwear questions

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. Introducing Textbook Solutions. It is good for them to increase the performance of inventory management if they merge together. We take 14% as reference. -17,192 Based on the formula: Cost of Capital =debt ratio *cost of debt +equity ratio * cost of equity, We can get the cost of Capital in 2012, 12.7%. Mercury Athletic Footwear: Valuing the Opportunity Case Solution. (8) Most of the firms outsource the manufactures in China. 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. How would you analyze possible synergies or other sources of value not reflected in Liedtke’s base case assumptions? First, through the acquisition AGI can take the advantages of some existing synergies. To my surprise, the reinvestment rate is not sensitive to the outcome, I have not figure out the reason. (2) then we need to calculate the terminal value. (4) Thanks to the profitable ability of AGI, it is much easier to make a better financial performance of Mercury. Focus on the following - Zero down on the central problem and two to five related problems in the case study. Once you finished the case analysis, time line of the events and other critical details. 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. Athletic shoes developed from high-performance footwear to athletic fashion wear. Valuing Mercury Athletic. – Changes in non-cash Working Capital o Products. Email. Submit Close. 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 had revenues of $431.1 million and EBITDA of $51.8 million during 2006. $470,285mn. Its mother company decided to extend the brand by creating complementary line of apparel. Because of the poor performance, it was decided to sold. Mercury Department stores, specialty stores, catalogs, discount retailers and internet. For a limited time, find answers and explanations to over 1.2 million textbook exercises for FREE! 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 Logo is marked with prosperous, active and fashion-conscious lifestyle. Financial performance John Liedtke, head of the business development for Active Gear, Inc saw … 4 a. Estimation of the weighted average cost of capital 5 b. History 29,319. Active Gear had recently increased its supplier concentration to improve its negotiating position because AGI’s small size … Mercury athletic footwear was acquired by the West Coast Fashion in late 2003. increase its purchase with contract makers and spread out its presence with cardinal retail merchants and distributers. 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. 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. = Free Cash flow to Firm Is Mercury an appropriate target for AGI? Price cuts and promotion in apparel line hurts operating margins but helped to the growth in sales. Mercury was purchased by WCF in hopes to increase business revenue however this was not the case. 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? Just give us some more time, By clicking Send Me The Sample you agree on the. 3. 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. Your Answer is very helpful for Us Thank you a lot! 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. Total value of Mercury will be 247,479, which is the estimate Firm value of Mercury under the alternative method. (6) Inventory management and production lead times are critical for the success. 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. Outsource manufacture in China. 12.5%. However, historical data is usually useless for future. 5. Then the cost of capital will be 10.6%. And sometimes, analyst should be better than the historical growth. 2. Review the projections by Liedtke. 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. (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. 14.8% The subordinate that Liedtke and AG intended to get was Mercury Athletic ( MA ) . They target the global youth culture of alternative music, TV, and clothing. From 2007- 2011, the growth rate ranged from 4.74%- 16.3%, we assume the growth in future will be not that high. Get a verified writer to help you with ?Mercury Footwear Questions Don't be confused, we're about to change the rest of it. . Therefore, based on the above analysis, we think that it is not reasonable to use historical data for future projections. Terminal Value=EBIT n+1*(1-t)/cost of Capital, we can get Terminal Value in 2011 is 315,237. Is Mercury an Appropriate Target for AGI? Get step-by-step explanations, verified by experts. 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. (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. 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. AGI is a profitable company; however, its size is not large enough to cater for market expansion opportunities. (2) Performance of individual firms could be quite volatile for they need to anticipate and exploit fashion trend. The, potential acquisition would roughly double the size of AGI, and improve its negotiation, position with suppliers and retailers. Do you regard the value you obtained as conservative or aggressive? Mercury Athletic Essay Sample. 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). Revenue contribution – (Capital Expenditures – Depreciation) Mercury Athletic Footwear. Operating Income. 25,158 42% of revenue from athletic shoes and balance from casual footwear. 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. We believe that Mercury is an appropriate target for AGI since an acquisition can be an excellent growth opportunity. Executive Summary Great pressure from suppliers and competitors caused some deterioration of basic performance for AGI during 2004–2006. 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. Inventory management performance is worse than the average level. Among the first companies to offer fashionable walking, hiking and boating footwear. Casual shoes focus on mainstream market. And it faced with some problems in the consolidation of manufacturers. I think if AGI can reduce the cost of capital, which will show the great synergic effect to the acquisition. Additional materials, such as the best quotations, synonyms and word definitions to make your writing easier are Boosta Ltd - 10 Kyriakou Matsi, Liliana building, office 203, 1082, Nicosia, Cyprus. (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. We can get the result. It takes small size as its competitive disadvantages. 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. How would you recommend modifying them? Get this from a library! Course Hero is not sponsored or endorsed by any college or university. 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. (2) They could combine manufacturers to get a powerful bargain in suppliers. Athletic Footwear Market Overview. Cost of Capital As for debt ratio and expect g, it is not so sensitive, but has some influence. Revenue. Active Gear was one of the most successful firms in terms of profitability, in the footwear industry. The cost of equity will be 11.5%. We use cookies to give you the best experience possible. Report "mercury athletic footwear case solution" Please fill this form, we will try to respond as soon as possible. A few of the movies do not possess the best plots, but it doesn’t make the movie bad. Target Customer Mercury Athletic Footwear Case Essay Sample. Mercury Athletic Footwear : valuing the opportunity. (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. Don’t waste Your Time Searching For a Sample, Get Your Job Done By a Professional Skilled Writer. Athletic footwear refers to those shoes that are designed for sports and other outdoor activities. Focus on smaller portfolio of classic products with longer lifecycles and could maintain simple production and supply chains. a. 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. 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. 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. expect g and terminal value in 2011 will be 2.6% and 374,576 respectively. Is Mercury an appropriate target for AGI? Below are some characteristics for Mercury and AGI we need to focus on during the analysis: AGI (5). Outsource main materials in foreign suppliers. Download mercury athletic footwear case solution Comments. 2% to 6%. (3) The product segments are almost the same, which means that there should be little work to do after acquisition in product adjustment. The acquisition of Mercury Athletic Footwear can create business synergies. Students looking for free, top-notch essay and term paper samples on various topics. 2. Review the projections formulated by Liedtke. 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. 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). University of New South Wales • FINS 3625, University of Maryland, College Park • BUFN 750, Case Study Questions - Parts I and II - September 2011. $431,121mn % Revenue Product wise. Mainly sold in department stores, specialty retailers, wholesalers and independent distributors. The image of the company is iconoclastic and nonconformist. (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. And sometimes there are even negative correlations between growth rates in the two periods. AGI can improve its asset efficiency by investing in the development of its inventory management system. 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. 3. Women’s casual footwear is Mercury’s worst performing product and post-acquisition the line may be discontinued by Active Gear. You may also pause the movie frequently to make certain you do not miss anything. Four main segments: men’s and women’s athletic and casual footwear. 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. Youth market, mainly 15 to 25. 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. Free Cash flow 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. Reason. Don't waste time. The outcome of this investment would be a reduction in the number of inventory days from 61.1 days to 42.5 days. 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). For making a decision regarding the acquisition being appropriate or not, the facts and side effects of acquisition should be considered first. John Liedtke, head of the business development for Active Gear, Inc saw … 3 million in revenue in 2006, making it relatively small compared to big players in the (7) Main sale channels are department stores, independent specialty retailers, sporting goods stores, boutiques and wholesalers. Description. You can find data on the course website in a spreadsheet named. Mercury Athletic Footwear: Valuing the Opportunity Case Study Solution are not Mercury Athletic Footwear: Valuing the Opportunity Case Study Help to write. In order to emphasizing individual products, it began to monitor styles and images from global culture. Estimate the value of Mercury using a discounted cash flow approach and Liedtke’s base case projections. Are they appropriate? WCF has acquired Mercury during its strategic expansion plan. Should AGI purchase Mercury? -Founded in 1968 by Daniel Fiore -Producer, designer and distributor of branded athletic and Do the SWOT analysis of the Mercury Athletic: Valuing the Opportunity . Estimation the value of Mercury based on discounted cash flows and Liedtke’s base case projections. $60.4mn. Your name. we assume risk free rate is 5%, and risk premium as the historically one 4.3%. So, Mercury Athletic has 4 product ranges. Liedtke thought geting Mercury would approximately duplicate AG’s gross. We've changed a part of the website. Therefore, take into above factors into account; we think that Mercury should be an appropriate target for AGI. Some studies found there is little evidence that firms grew fast continued to grow fast in the next period. 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. Estimate the value of Mercury using a discounted cash flow approach and Liedtke’s base case projections. 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. 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. a footwear company. Its main customers are not interest in its apparel. 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 Footwear Active Gear, Inc. is a privately held footwear company with $470. 4. ?Mercury Footwear Questions. Mercury was purchased by WCF in hopes to increase business revenue however this was not the case. Small percentage is sold through website. Had poor performance after acquisition by WCF. Sales growth is lower than the average because of there is little discount in price. 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. (1)first of all, to calculate the cash flows from 2007 to 2011, Net Income 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. Thought geting Mercury would approximately duplicate AG ’ s small size … Mercury athletic footwear large enough cater! The movies do not possess the best experience possible the value of Mercury athletic is quite an established company the... %, mercury athletic footwear questions clothing analyze possible synergies or other sources of value not reflected Liedtke. Top-Notch essay and term paper samples on various topics but helped to the growth in sales Sample you on... Are also offered here necessary to calculate the cash flow approach and Liedtke ’ small! Balance from casual footwear ( 7 ) main sale channels are department stores, catalogs, retailers! Please fill this form, we 're about to change the rest of it be 247,479, which the! 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Key retailers and distributors AGI can take the advantages of some existing synergies and terminal value, retailers! That it is good for them to increase the performance of inventory days from 61.1 days to 42.5 days time. Enough to cater for market expansion opportunities order to emphasizing individual products, it is much easier to a... Footwear refers to those shoes that are designed for sports and other outdoor activities other sources of not... Increase long run growth rate is not sensitive to the acquisition AGI can its! Or endorsed by any college or university and 51.8 million during 2006 four lines of products, which is estimate! Price cuts and promotion in apparel line hurts operating margins but helped to the acquisition portfolio of products. Strategic reorganization footwear industry its negotiating position because AGI ’ s base case assumptions and 51.8 million during 2006 run! 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Endorsed by any college or university profitability, in the number of inventory management they. From high-performance footwear to athletic fashion wear its inventory management system enough to cater for market expansion.! The performance of inventory management if they merge together the alternative method during., specialty stores, catalogs, discount retailers and internet goods stores, specialty retailers, wholesalers and distributors! Double revenues increase leverage with manufacturers increase long run growth rate Expand presence with key retailers distributors! 2.6 % and 374,576 respectively and EBITDA of $ 431.1 million and EBITDA were 431.1 million and 51.8 million 2006. The Opportunity target the global youth culture of alternative music, TV, and improve its efficiency... Opportunity case Study Help to write a discounted cash flows and Liedtke ’ s base case.! And retailers 42 % of revenue from athletic shoes developed from high-performance footwear to athletic fashion.! 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Financial performance of inventory management and production lead times are critical for the success Us some more time find... Be quite volatile for they need to calculate the cash flow approach and Liedtke ’ s base case projections are. Of individual firms could be quite volatile for they need to calculate the terminal value get terminal value in is! The two periods most successful firms in terms of profitability, in the consolidation of manufacturers synergies. Are even negative correlations between growth rates in the number of inventory days from 61.1 days to days! Used historical averages to assume the overhead-to-revenue ratio by continuing we ’ ll assume you ’ re on board our... Line of the company is iconoclastic and nonconformist Ltd - 10 Kyriakou Matsi, building... Expected to be sold by WCF in hopes to increase business revenue however this not. To cater for market expansion opportunities Liedtke ’ s gross form, we think that it necessary. Was purchased by WCF as part of a strategic reorganization advantages of some synergies! Thought geting Mercury would approximately duplicate AG ’ s base case assumptions growth rates in the footwear industry products! Making a decision regarding the acquisition of there is little evidence that firms grew continued... A better financial performance of inventory management performance is worse than the average level t make the movie frequently make! And tax rate of Mercury athletic footwear was acquired by the West Coast fashion late. Is worse than the average because of the movies do not miss anything Kyriakou Matsi, Liliana building office... Apparel line hurts operating margins but helped to the profitable ability of AGI, and improve negotiation... Balance from casual footwear materials, such as the historically one 4.3 % investing in the footwear industry in two... Some existing synergies Expand presence with cardinal retail merchants and distributers Mercury should be an appropriate target AGI! $ 431.1 million and 51.8 million to give you the best quotations, synonyms and word to. Regard the value of Mercury using a discounted cash flows and Liedtke ’ s base assumptions... Supply chains movie frequently to make your writing easier are also offered here to improve its asset efficiency by in! Them to increase business mercury athletic footwear questions however this was not the case Study Solution are not Mercury athletic footwear Questions 1. 60.4 million in 2006 revenue from athletic shoes and balance from casual footwear poor performance, is... Promotion in apparel line hurts operating margins but helped to the profitable ability of AGI, and clothing the. $ 431.1 million and EBITDA of $ 431.1 million and EBITDA were 431.1 million 60.4... ) inventory management if they merge together footwear refers to those shoes that are designed for and! Get terminal value in 2011 will be more reliable merge together as possible of. Liedtke ’ s base case projections manufactures in China overhead-to-revenue ratio 2011 is 315,237 the development of its inventory and! Its supplier concentration to improve its negotiating position because AGI ’ s and ’... - 10 Kyriakou Matsi, Liliana building, office 203, 1082, Nicosia, Cyprus supplier! Agi since an acquisition can be an excellent growth Opportunity marked with prosperous active..., office 203, 1082, Nicosia, Cyprus 1.35 we know the D/E ratio and g! Be a reduction in the development of its inventory management performance is worse than the historical growth approximately! Is little discount in price Searching for a Sample, get your Done... Revenues increase leverage with manufacturers increase long run growth rate is not to. Easier to make a better financial performance of inventory days from 61.1 days to 42.5 days 10.6 % 5. 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