RJR NABISCO CASE Asset valuation

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RJR NABISCO CASE
Guzmán Colilla Barreiro
Asset Valuation
02/04/15

Questions for RJR Nabisco case

1. What was the value of RJR Nabisco under

Asset Beta:

= 0.50

= 0.92

Ba=(0.50+0.92)/2 = 0.7

Assume that Rf = 9% (from the Marriott Case)
Assume that Rp=8% (from the Marriott Case)
Ka = Rf + BARp
Ka = 9% + (0.7)(8%) = 14.6%

a) The pre-bid operating strategy?

b) The Management Group's strategy?

c) KKR's operating strategy?

2. What accounts for any difference in the value of three operating plans?

The distinction in estimation of each of the 3 working arrangements originates from the distinction in working methodologies by the 2 bidders. This brought about diverse capital income estimates which brought about the distinctive valuation. The administration bunch's proposed methodology was to offer piece of RJR Nabisco's sustenance organizations since they accepted that the business was underestimated by business sector. They accept that differentiating could help the business sector recognize the tobacco business and sustenance business and understand the genuine natural estimation of every business. They accept that doing this would help business sector understand the organization's esteem all the more proficiently and amplify shareholders'interests. It is likewise piece of an utilized buyout, some piece of which is financed by long haul obligation, adjusting the capital structure going advances. More obligation prompts a more noteworthy valuation of the firm because of the higher expense shields.

KKR then again needed to keep up the majority of the tobacco business and sustenance operations. KKR need to grow the tobacco to Winston-Salem, North Carolina. KKR thinks keeping working nourishment business appropriately could bring more profit than just offer the advantages of sustenance business and perceive pick up at one time and since it included more obligation, it will likewise bring about another capital structure subsequently

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