- Using the already created Google Doc and Google Sheet check the numbers in the tabs of the Google Sheet starting with betas to confirm all calculations are correct. - Use the data from the Google...

Bates and Daughenbaugh 1
    
Sterling Household Case Study
FNCE6310 | Financial Decisions & Policies
Professor John Byrd | Spring 2020 | March 17, 2020
By: Jennifer G. Bates and Shawn Daughenbaugh
· If Sterling acquires for 265M and does not expand it does make sense to do the deal.
· Is there a way to calculate what the cost should be to get a return of 6.78% or more?
· The IRR at 265M is less than WACC. This is criteria for accepting or rejecting a project. It does not satisfy the requirements of our investors.
· The return on future dollars of this project is higher than the need to satisfy our requirements - if IRR was greater than WACC. Or we have to expand into the 20 years of product life cycle.
· We could talk about changing the purchase price for the acquisition as it relates to the not expanding. This is the only idea we should discuss in the academic context. If we use solver in excel and set NPV to zero then the purchase price that makes the project worth it is 260,612k or less for the acquisition. IRR=WACC and NPV equals zero. Go through how we did it. If we get it for x price or less than its profitable. Show this in the appendix the
eak even.
· Interim tab, the value of the expansion alone is worth it. What is the value of the expansion itself? It increases value to the firm - increases wealth = increases wealth to the firm - looking at cash flows, IRR and NPV. The net income is really After-tax Cash Flow before Investment, WC, not net income because that is an accounting number. Net income includes depreciation and depreciation is not cash.
· John says “increases wealth to the firm” = is there positive cash flow back to the firm?
· NPV equals row 29
· We have to expand - let's try to get the acquisition as low as possible because it increases our valuation.
· The projects timeframe is truly 20 years for us - we need to look at cash flows for this to take into account the entire product life cycle.
· No matter what we acquire the deal for the value from the expansion stays the same. It's not the end of the world if we pay 265M because the acquisition increases our wealth and there is value in our expansion and we know what the value is and we would present x case to the BOD and COO, etc. Articulate the case we would make.
· Why we chose two out of six companies is because 80% of its revenue is generated out of the products that we are looking to invest into. We took the average of the two companies to get the beta for Sterling.
· L28 is a lump sum value of cash flow from 2022 plus nine times the value of 2022 which accounts for the cash flows from 2023-2032.
· The NPV and the IRR on the pro forma expansion takes into account the ccost of the acquisition.
I. Executive Summary
Sterling Households Products Company manufactured and marketed wide variety of consumer products like soaps, cosmetics, toilet & cleaning, disinfectants, laundry and sanitizing products both nationally and internationally. Sterling has some renowned
ands delivering high profits and sales under its
and name. Now, Sterling wanted to grow and expand in the healthcare industry as their unit volume, sales and profits growth rates are low compared to the industry average. Hence, they have agreed to acquire Montagne medical instrument company at an agreed price of $265 million. But, Sterling is analysing whether this purchase...