Caso Cooper
ESAN UNIVERSITY
FINANCE I
Professor: LUIS A. PIAZZON, PH.D
Cooper Industries, Inc.
By
Melissa Lezameta
Támara Alfonso
Christian García
Miguel Amable
CASE: COOPER INDUSTRIES, INC.
Following are the answers to the case:
1. If you were Mr. Cizik of Cooper Industries, would you try to gain control of Nicholson File Company in May 1972?
Methodology
We have taken the flowing steps for this analysis: * Determine the value of the Nicholson File Company as a whole. For this we have calculated the NPV. * Determined the value of Nicholson on a synergy, assuming after it has been acquired by Coopers. * Determine the value of Cooper Industries on after the synergy. We have calculated the new NPV for this step. * Evaluated the acquisition strategies based on the above calculations and the financial position of Cooper.
Calculation of WACC
The cost of equity was determined using Damodaran to obtain the risk free rate, market premium and the unlevered β (For Cooper we used Heavy Truck and Equip Makers Industry and for Nicholson we used Metal Fabricating industry). See exhibit 1 * Cost of capital of Cooper: 19.10% * Cost of capital of Nicholson: 18.24%
In order to calculate the cost of debt we divided the Interest Expense by the Long Term Debt. We got the following results: * Cost of Debt for Cooper = 8.8% * Cost of Debt for Nicholson = 6.7%
Finally we have used these inputs to obtain the WACC for each company (see exhibit 2): * WACC for Cooper: 16.01% * WACC Nicholson: 14.27%
* Note that we have assumed a stable firm model
Determining the value of the Nicholson File Company as a whole
We have forecasted the value of Nicholson assuming a stable growth form model under three growth scenarios, 2%, 4% and 6%. The capital expenditure has been assumed equal to the depreciation charged. This has been done to keep a constant productive capacity for the firm. The net change in working capital
FINANCE I
Professor: LUIS A. PIAZZON, PH.D
Cooper Industries, Inc.
By
Melissa Lezameta
Támara Alfonso
Christian García
Miguel Amable
CASE: COOPER INDUSTRIES, INC.
Following are the answers to the case:
1. If you were Mr. Cizik of Cooper Industries, would you try to gain control of Nicholson File Company in May 1972?
Methodology
We have taken the flowing steps for this analysis: * Determine the value of the Nicholson File Company as a whole. For this we have calculated the NPV. * Determined the value of Nicholson on a synergy, assuming after it has been acquired by Coopers. * Determine the value of Cooper Industries on after the synergy. We have calculated the new NPV for this step. * Evaluated the acquisition strategies based on the above calculations and the financial position of Cooper.
Calculation of WACC
The cost of equity was determined using Damodaran to obtain the risk free rate, market premium and the unlevered β (For Cooper we used Heavy Truck and Equip Makers Industry and for Nicholson we used Metal Fabricating industry). See exhibit 1 * Cost of capital of Cooper: 19.10% * Cost of capital of Nicholson: 18.24%
In order to calculate the cost of debt we divided the Interest Expense by the Long Term Debt. We got the following results: * Cost of Debt for Cooper = 8.8% * Cost of Debt for Nicholson = 6.7%
Finally we have used these inputs to obtain the WACC for each company (see exhibit 2): * WACC for Cooper: 16.01% * WACC Nicholson: 14.27%
* Note that we have assumed a stable firm model
Determining the value of the Nicholson File Company as a whole
We have forecasted the value of Nicholson assuming a stable growth form model under three growth scenarios, 2%, 4% and 6%. The capital expenditure has been assumed equal to the depreciation charged. This has been done to keep a constant productive capacity for the firm. The net change in working capital