Mercury Athetic

Net Present Value of Mercury gymnastic Enterprise The results of my financial analysis based on the Free interchange Flow Method considering the base flake of financial projections and assumptions for Mercury acrobatic Footwear collated and developed by John Liedtke indicate that that the project to mature Mercury Althletic has a positive net present value at $243,025 (in thousands) given by PV(FCF)=86,681+ PV (Terminal Value) =156,343 which is also greater than the recommended acquisition price of $186,216 (in thousands),therefore dynamical Gear Inc. hould proceed with the acquisition of Mercurys operation. Free hard cash Flow The free cash flow from Mercurys barter operations was determined using the base case for the consolidated operating(a) income, expenses, appraise rate and depreciation to determine the net operating profits after tax (NOPAT) for the years 2007-2011. Free cash flow was because calculated using the formula (FCF= NOPAT + Depreciation-? Net Working Cap ital -? fix Assets) which was evaluated at $21,240, $26,727, $ 22,097, $25,473 and $29,545 for the years 2007, 2008, 2009, 2010 and 2011 respectively. The Cost of Debt and the Cost of Equity The next tonus was to determine the coast of debt, using the assumptions made by Mr. Liedtke which outlines a tax rate of 40%, the cost of debt of 6% for a leverage of 20% debt. The after-tax cost of debt (RD) was determined to be 3. % using RD =(R*(1-Tax Rate), where RD =after rate cost of debt, R= cost of debt The cost equity estimated using the CAPM approach, Surfside Footwear was selected as a comparable company since its EBIT Margin of 9. 3% was the same as the mean(a) consolidated EBIT Margin of Mercury Athletic for period 2004-2006, the Equity genus Beta for Surfside from Exhibit 3 was 2. 13. The risk free was determined to be 4. 69% using US Treasury Bills Yield given in the case Footnotes on page 7. The 5 year T-bill yield was selected as