Wacct 505 Week 9 Final Paper
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University of Wisconsin School of Business
Financial Policy: 755 Fall 2004
Professor: E-mail: Office Hours:
Dr. Toni Whited twhited@bus.wisc.edu MW 2:30-3:30 p.m. and by appointment
Office: Phone: Fax:
5289 Grainger (608)262-6508 (608)265-4195
Objective: This course is designed to provide you with a general understanding of a variety of financial restructuring and reorganization techniques. Each topic that we discuss describes a transaction that restructures or reorganizes the firm in some particular way. The specific objectives of the course include: (1) to help build a framework for analyzing various corporate restructuring transactions primarily through techniques of financial analysis; (2) to provide a …show more content…
2. Value Line reports the Beta on AHP to be 0.90 (as of April 9, 1982) and they estimate the growth rate on "cash flow" will be 13%. The yield on the Long-term U.S. Treasury on 12/23/81 was 13.60%. What is cost of equity under the above scenarios? What is the WACC? Note: the market value of equity at the time was $4.652 billion (155,068,985 shares times $30/share). 3. What would your projections look like assuming AHP’s debt rating would be based off of Warner Lambert’s rating and financial ratios? 4. Under the above scenarios (and assuming AHP does no restructuring), what is your estimate of the value of AHP as a whole? What is the value of the debt and equity under these scenarios assuming AHP issues debt and uses the proceeds to repurchase equity to attain the debt to capital ratios? What will the wealth impact on current shareholders be under the alternative scenarios from part 3? 5. So far, you have ignored the nonquantifiable aspects of debt usage. What are the important nonquantifiable effects of debt that we should consider in general (basic list). Are these important considerations for AHP? Why or why not? 6. What should AHP do in regards to the debt usage if they wish to maximize shareholder value considering your quantitative analysis and the qualitative concerns from part 5 (i.e., what’s your bottom line recommendation)? B. Junk Bond Financing
University of Wisconsin School of Business
Financial Policy: 755 Fall 2004
Professor: E-mail: Office Hours:
Dr. Toni Whited twhited@bus.wisc.edu MW 2:30-3:30 p.m. and by appointment
Office: Phone: Fax:
5289 Grainger (608)262-6508 (608)265-4195
Objective: This course is designed to provide you with a general understanding of a variety of financial restructuring and reorganization techniques. Each topic that we discuss describes a transaction that restructures or reorganizes the firm in some particular way. The specific objectives of the course include: (1) to help build a framework for analyzing various corporate restructuring transactions primarily through techniques of financial analysis; (2) to provide a …show more content…
2. Value Line reports the Beta on AHP to be 0.90 (as of April 9, 1982) and they estimate the growth rate on "cash flow" will be 13%. The yield on the Long-term U.S. Treasury on 12/23/81 was 13.60%. What is cost of equity under the above scenarios? What is the WACC? Note: the market value of equity at the time was $4.652 billion (155,068,985 shares times $30/share). 3. What would your projections look like assuming AHP’s debt rating would be based off of Warner Lambert’s rating and financial ratios? 4. Under the above scenarios (and assuming AHP does no restructuring), what is your estimate of the value of AHP as a whole? What is the value of the debt and equity under these scenarios assuming AHP issues debt and uses the proceeds to repurchase equity to attain the debt to capital ratios? What will the wealth impact on current shareholders be under the alternative scenarios from part 3? 5. So far, you have ignored the nonquantifiable aspects of debt usage. What are the important nonquantifiable effects of debt that we should consider in general (basic list). Are these important considerations for AHP? Why or why not? 6. What should AHP do in regards to the debt usage if they wish to maximize shareholder value considering your quantitative analysis and the qualitative concerns from part 5 (i.e., what’s your bottom line recommendation)? B. Junk Bond Financing