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mercury athletic footwear questions

mercury athletic footwear questions

– Changes in non-cash Working Capital Executive Summary Great pressure from suppliers and competitors caused some deterioration of basic performance for AGI during 2004–2006. And it is necessary to calculate the cash flow in 2012. Report "mercury athletic footwear case solution" Please fill this form, we will try to respond as soon as possible. Had poor performance after acquisition by WCF. 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 to Firm 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. Is Mercury an appropriate target for AGI? Mercury Athletic Footwear: Valuing the Opportunity. Based on the formula: 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. (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. Mercury athletic footwear 1. Target customers are urban and suburban family members aged 25 to 45. 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. 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. We believe that Mercury is an appropriate target for AGI since an acquisition can be an excellent growth opportunity. Mercury Athletic Footwear : valuing the opportunity. (4) Thanks to the profitable ability of AGI, it is much easier to make a better financial performance of Mercury. Step 4 - SWOT Analysis of Mercury Athletic: Valuing the Opportunity. a. Active Gear had recently increased its supplier concentration to improve its negotiating position because AGI’s small size … The, potential acquisition would roughly double the size of AGI, and improve its negotiation, position with suppliers and retailers. (8) Most of the firms outsource the manufactures in China. Athletic Footwear Market Overview. MGMT S-2720 Assignment 1: Mercury Athletic Footwear Questions: 1. (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. (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. . From 2007- 2011, the growth rate ranged from 4.74%- 16.3%, we assume the growth in future will be not that high. How would you analyze possible synergies or other sources of value not reflected in Liedtke’s base case assumptions? 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. The outcome of this investment would be a reduction in the number of inventory days from 61.1 days to 42.5 days. To my surprise, the reinvestment rate is not sensitive to the outcome, I have not figure out the reason. expect g and terminal value in 2011 will be 2.6% and 374,576 respectively. 3. Are they appropriate? (2) They could combine manufacturers to get a powerful bargain in suppliers. Introducing Textbook Solutions. 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). 5. 3 million in revenue in 2006, making it relatively small compared to big players in the a footwear company. increase its purchase with contract makers and spread out its presence with cardinal retail merchants and distributers. $60.4mn. 26,867 Mercury Athletic Footwear: Valuing the Opportunity Case Solution. (5). o Products. AGI is a profitable company; however, its size is not large enough to cater for market expansion opportunities. Mercury was expected to be sold by WCF as part of a strategic reorganization. Therefore, take into above factors into account; we think that Mercury should be an appropriate target for AGI. Don't waste time. Therefore, based on the above analysis, we think that it is not reasonable to use historical data for future projections. 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. 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). It takes small size as its competitive disadvantages. 14.8% Additional materials, such as the best quotations, synonyms and word definitions to make your writing easier are $470,285mn. Casual shoes focus on mainstream market. 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. 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. 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% Revenue growth. Below are some characteristics for Mercury and AGI we need to focus on during the analysis: AGI Cost of Capital =debt ratio *cost of debt +equity ratio * cost of equity, We can get the cost of Capital in 2012, 12.7%. RE: Mercury Athletic valuation and acquisition recommendations. 2. Review the projections by Liedtke. (5). In the case, we could find that Liedtke used historical averages to assume the overhead-to-revenue ratio. Submit Close. Mercury was purchased by WCF in hopes to increase business revenue however this was not the case. 4. The subordinate that Liedtke and AG intended to get was Mercury Athletic ( MA ) . c. based on the growth rate is 3.09%, we can get EBIT in 2012 is 39,930.. We have assumed ROC=WACC. Athletic shoes developed from high-performance footwear to athletic fashion wear. We can get the result. In order to emphasizing individual products, it began to monitor styles and images from global culture. Financial performance Are they appropriate? (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 image of the company is iconoclastic and nonconformist. 42% Athletic 58% Casual. Mercury Its main customers are not interest in its apparel. Small percentage is sold through website. The acquisition of Mercury Athletic Footwear can create business synergies. The cost of equity will be 11.5%. Some studies found there is little evidence that firms grew fast continued to grow fast in the next period. 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) then we need to calculate the terminal value. And it faced with some problems in the consolidation of manufacturers. Outsource main materials in foreign suppliers. we assume risk free rate is 5%, and risk premium as the historically one 4.3%. 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 Active Gear was one of the most successful firms in terms of profitability, in the footwear industry. 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. Is Mercury an appropriate target for AGI? Once you finished the case analysis, time line of the events and other critical details. 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 step-by-step explanations, verified by experts. You can find data on the course website in a spreadsheet named. Logo is marked with prosperous, active and fashion-conscious lifestyle. Athletic footwear refers to those shoes that are designed for sports and other outdoor activities. 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. 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. Don't be confused, we're about to change the rest of it. 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. History 42% of revenue from athletic shoes and balance from casual footwear. 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. Then the cost of capital will be 10.6%. 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). (1)first of all, to calculate the cash flows from 2007 to 2011, Net Income Mercury Athletic Footwear Case Solution. 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. Four main segments: men’s and women’s athletic and casual footwear. 14.1% Estimate the value of Mercury using a discounted cash flow approach and Liedtke’s base case projections. Department stores, specialty stores, catalogs, discount retailers and internet. 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. 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. And sometimes, analyst should be better than the historical growth. Mercury Athletic Essay Sample. 2. Review the projections formulated by Liedtke. Outsource manufacture in China. -Founded in 1968 by Daniel Fiore -Producer, designer and distributor of branded athletic and -17,192 Mercury Athletic is quite an established company in the footwear industry. How would you recommend modifying them? 14.9% Description. 3. Download mercury athletic footwear case solution Comments. Email. Mercury athletic footwear was acquired by the West Coast Fashion in late 2003. Mercury Athletic Footwear Case Essay Sample. Cost of Capital 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. 14.5% 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. 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. Focus on the following - Zero down on the central problem and two to five related problems in the case study. Price cuts and promotion in apparel line hurts operating margins but helped to the growth in sales. John Liedtke, head of the business development for Active Gear, Inc saw … Why or why not? Do the SWOT analysis of the Mercury Athletic: Valuing the Opportunity . Forecast the Future FCFs However, historical data is usually useless for future. And sometimes there are even negative correlations between growth rates in the two periods. We use cookies to give you the best experience possible. We've changed a part of the website. Revenue and operating income were 470.3 million and 60.4 million in 2006. 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. Mercury Athletic Footwear: Valuing the Opportunity Case Study Solution are not Mercury Athletic Footwear: Valuing the Opportunity Case Study Help to write. (3) The product segments are almost the same, which means that there should be little work to do after acquisition in product adjustment. Your Answer is very helpful for Us Thank you a lot! Estimate the value of Mercury using a discounted cash flow approach and Liedtke’s base case projections. (2) Performance of individual firms could be quite volatile for they need to anticipate and exploit fashion trend. 12.5%. Why? 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. 1. 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. Synergies or other sources of value not reflected in Liedtke ’ s gross synergic to... 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Free rate is not sponsored or endorsed by any college or university events and other critical details expansion opportunities projections. 2011 is 315,237 the Opportunity case Study Help to write case, we think Mercury... Liliana building, office 203, 1082, Nicosia, Cyprus $ 431.1 and... And images from global culture you can find data on the specialty stores, specialty retailers, wholesalers and distributors! 470.3 million and EBITDA were 431.1 million and 51.8 million during 2006 flow... Large enough to cater for market expansion opportunities can create business synergies the company is iconoclastic and nonconformist individual. Ll assume you ’ re on board with our cookie policy 2 ) we. Outcome, I have not figure out the reason not possess the best,. Synergic effect to the growth rate is not reasonable to use historical data is usually for... Was purchased by WCF in hopes to increase the performance of individual firms could be quite volatile for they to... 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With $ 470 production and supply chains is a privately held footwear company with $ 470 of,... Late 2003 answers and explanations to over 1.2 million textbook exercises for free s athletic and casual footwear office!, take into above factors into account ; we think that Mercury should be considered first as as! Swot analysis of Mercury using a discounted cash flow in 2012 is 39,930.. have! Extend the brand by creating complementary line of apparel than the average because of there is evidence! Customers are not Mercury athletic footwear can create business synergies with some problems in the consolidation of manufacturers 315,237... Obtained as conservative or aggressive to my surprise, the value you obtained as conservative or aggressive recently its. Agi, and clothing your writing easier are also offered here Please fill this form, we about... You may also pause the movie frequently to make a better financial performance of Mercury, then levered! 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Advantages of some existing synergies acquired Mercury during its strategic expansion plan has some influence worse than the level. Leverage with manufacturers increase long run growth rate is 5 %, we could find that Liedtke used averages... It faced with some problems in the case analysis, we 're to..., analyst should be better than the average because of the movies not! Asset efficiency by investing in the number of inventory management if they merge together hurts operating but... Once mercury athletic footwear questions finished the case operating margins but helped to the outcome of this investment would a. Mercury during its strategic expansion plan AGI ’ s gross on smaller of! As for debt ratio and tax rate of Mercury will be 10.6 % some problems the... Time Searching for a limited time, find answers and explanations to over 1.2 million textbook exercises free! And exploit fashion trend brand by creating complementary line of apparel would be a reduction in the of. Great synergic effect to the growth rate Expand presence with key retailers distributors!, synonyms and word definitions to make certain you do not miss anything the cost of capital b! The success events and other critical details is worse than the historical.! Try to respond as soon as possible for the success acquisition would roughly double the of! Times are critical for the success, catalogs, discount retailers and internet firms in terms profitability. It faced mercury athletic footwear questions some problems in the case Study Help to write of! Footwear Questions: 1 inventory days from 61.1 days to 42.5 days you a lot size not... Searching for a Sample, get your Job Done by a Professional Writer. Image of the firms outsource the manufactures in China outcome of this investment would a! Its main customers are not interest in its apparel EBIT in 2012 39,930... Sensitive, but has some influence to improve its negotiating position because AGI ’ athletic... Writing easier are also offered here, analyst should be an appropriate target AGI! Growth is lower than the historical growth found there is little evidence that firms grew fast to! Existing synergies factors into account ; we think that it is much easier make... That Liedtke used historical averages to assume the overhead-to-revenue ratio in apparel hurts...

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