Finance Case Study

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MERGER ANALYSIS: ROBERTSON TOOL COMPANY & MONMOUTH INC.| | | | Tax rate| | 40%| | Premerger value of RT stock| $25.70 | million| | | | | | # shares of RT stock| | 584000| |

| Beta| | 0.96| | Initial debt| | $12 | |
rRF| Risk free rate| 4.10%| | S ( in millions)| | #REF!| | rPM| Risk Premium| 5.50%| | D (in millions)| | $12 | | | Cost of Debt| 6.7%| | Industry growth rate| | 6%| | rd| After tax cost of debt| 4%| | | | | | |

| | | | | | | | | |
WACC estimation| | | | | | | | |
| rSL| =| rRF| +| Beta| *| rPM| | |
| | | 4.10%| +| 0.96| *| 5.50%| | |
| rSL| =| 9.38%| | | | | | |
| | | | | | | | | |
| Wd| =| D/(S+D)| =| #REF!| | | | |
| | | | | | | | | |
| WACC| =| Wdrd(1-T)| +| WsrSL| | | | |
| | =| #REF!| +| #REF!| | | | |
| WACC| =| #REF!| | | | | | |
| | | | | | | | | |
Projected annual free cash flows for Robertson Tool Co.| | | | | | | 2002| 2003| 2004| 2005| 2006| 2007| to infinity| | Sales| $ 55.3| $ 58.6| $ 62.1| $ 65.9| $ 69.8| $ 69.8| | | | Cost of Goods| 37.9| 39.8| 41.6| 43.5| 45.4| 45.4| | | | Sell & Admin| 12.3| 12.3| 12.4| 12.5| 13.3| 13.3| | | | Depreciation| 2.1| 2.3| 2.5| 2.7| 2.9| 2.9| | | | EBIT| 3.0| 4.2| 5.6| 7.2| 8.2| 8.2| | | |

| | | | | | | | | |
Free Cash Flow Calculations:| | | | | | | |
| | 2002| 2003| 2004| 2005| 2006| 2007| to infinity| Operating current assets| 28| 29.68| 31.46| 33.35| 35.3| 35.35| | | Current liabilities| 4| 4.24| 4.49| 4.76| 5.05| 5.05| | | Total net operating capital| 24| 25.44| 27.0| 28.58| 30.3| 30.3| | | Change in net OC| | -1.44| -1.5| -1.6| -1.7| 0.0| | | | | | | | | | | | |

| | 2002| 2003| 2004| 2005| 2006| 2007| | |
NOPAT|...
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