What analysis would you put on the whiteboard to give the Directors an indication of how to calculate the impact on value of the difference in the selected WACC?

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Learning Goal: I’m working on a business test / quiz prep and need an explanation and answer to help me learn.question 1. You’re the CFO of Phish Oil Company, and you’ve just finished a hastily prepared summary of a highly visible and very exciting company named Golgi Apparatus, Inc. Your analysis was conducted in preparation for a special Board of Directors meeting to be held in a few hours to consider the opportunity. Golgi Apparatus, Inc. has just announced its interest in selling to a strategic acquirer and the market is abuzz with chatter on the subject.The CEO and the Board are justifiably interested in submitting an indication of interest to the investment banker representing Golgi Apparatus, Inc., and your analysis will be helpful in pricing that offer. It’s a compelling acquisition opportunity for Phish Oil Company but, in your humble opinion, it is a risky venture due to the uncertainty of the success Phish Oil Company will have in integrating the both the business lines and cultures. As a result of your perception of the added risk, you’ve chosen to evaluate the acquisition using a 16.5% WACC, which is 250 basis points higher than Phish Oil Company’s overall, ‘standard’ WACC. You are keenly aware of the impact this will have on the pricing of the deal, and you expect some push-back from the board on this point based on their concern that Phish Oil Company may be outbid on the deal.In the Board meeting, you present your findings by laying out your financial expectations of Golgi Apparatus, Inc. and applying a discounted cash flow model that reaches a value conclusion. The estimated level of their Free Cash Flow for the next full year is $11,000,000 and a reasonable estimate of long term sustainable FCF growth is set at 5% in your analysis.As you expected, the CEO and several board members are alarmed by your choice of a 16.5% discount rate versus the ‘standard’ WACC and want you to indicate what a reduction in the WACC by 250 basis points would do to the value.As you go to your laptop to make that quick model change in response to their request, you realize in a state of panic that your laptop battery has run out. Knowing that you don’t have the time to go back to your office to get the charging cable, you walk up to the whiteboard and present some simple but compelling math that shows the Board members by exactly how much you believe using the reduced WACC over-values Golgi Apparatus, Inc.Based solely on the information presented above, what analysis would you put on the whiteboard to give the Directors an indication of how to calculate the impact on value of the difference in the selected WACC?done26 mins agoquestion 2. You are a senior loan officer at a Muse Capital, Inc. You’ve been invited to propose on the senior financing portion of a $70 million total loan facility requested by a large industrial firm named Alter Bridge Corporation. They are a solid, long-term customer of your bank and have a history of completing well-managed expansion projects. The financing proposal, requested by Alter Bridge Corporation in January 2020, seems to be another one of those with the proceeds being used to fund a large, regional expansion into a new market in 2020 and beyond.It’s likely that the $70mm facility will include senior and subordinated financing components. Your bank, however, does not make and will not provide any part of any subordinated loans (if any subordinated debt is needed at all). So, Alter Bridge is asking you (and several other large senior lenders) what the maximum incremental senior loan amount might be so they can plan for how much subordinated debt they need in addition to the senior facility.To assist you in your preliminary evaluation you’ve received the following information:201720182019P2020P2021EBITDA$9.0mm$10.0mm$11.0mm$15.0mm$17.0mmCAPEX$2.0mm$2.0mm$2.1mm$70.0mm$2.2mmTotal Financing:Existing facilityRequested New Facility$13.0mm$0.0mm$12.0mm$0.0mm$11.0mm$0.0mm$10.0mm$70.0mm$9.0mm$60.0mmThis information provides you with a way to generate a quick answer to your customer by using a leverage multiple approach.If your bank will extend credit to its strongest clients using a leverage multiple of 3.75x near term projected EBITDA for all outstanding debt, what calculation (or calculations) would you show to Alter Bridge Corporation detailing the maximum amount of Muse Capital’s participation in the requested $70.0 million facility?done26 mins agoquestion 3. You are an Investment Banker with the firm of Emerson, Lake and Palmer, LLC and you’re working on a leveraged acquisition being considered by your client, Allison Chains, Inc. You’ve received financial information and projections from the target company and you begin the preparation of you DCF valuation model. You know that your Managing Director at Emerson, Lake and Palmer, LLC will want to present two general forms of analysis to the Allison Chains, Inc. board of directors.The first will be a valuation of the entire business enterprise based on a projection of Free Cash Flow.
The second will be an IRR analysis of the specific investment returns in the form of Net Cash Flow that Allison Chains, Inc. will earn on the equity portion of their purchase of the target company.
Year 1Earnings before Interest, Taxes, Depr. and Amort.$ 20,000Amortization Expense$ 0Depreciation Expense$ 4,000Earnings Before Interest and Taxes$ 16,000Interest Expense$ 2,500Income Before taxes$ 13,500Provision for Taxes$ 3,375Net income$ 10,125Other dataDividends Paid$ 0Required Change in New Working Capital($ 1,000)Capital Expenditures($ 4,500)Net Debt Principal Payments($ 1,000)Based on the information set out above, make separate calculations of the Year 1 values of FCF and NCF that you’ll use in your valuation modeling.done25 mins agoquestion 4. ou’re an investment banker engaged by Porcupine Tree Company regarding their efforts to complete a significant M&A transaction. One of the things you’re evaluating is the value of the company Porcupine Tree Company wishes to acquire.At issue is a measure of uncertainty in your mind regarding the company’s projection for 2020; especially the revenue projection. The target company is a global concern, and the foreign currencies in which it transacts its overseas business did strengthen against the dollar. However, your quick math suggests that doesn’t explain the total jump in revenues.The financial history and near term projections for the target company are as set out below. These projections were included in a pitch book you received from the target company’s investment banker. Much to your surprise, the pitch book does not explain the sudden jump in revenues or any other figures for the projection of 2020.20162017201820192020PRevenues (000s)$600,000$605,000$645,000$635,000$850,000Percent Growth0.83%6.61%(1.55%)33.86%EBITDA$60,000$59,00064,000$60,000$110,000Depreciation$10,000$10,50010,700$15,000$20,000EBIT$50,000$48,500$53,300$45,000$90,000Interest Expense$0$0$0$0$0Free Cash Flow$30,000$29,000$10,000($10,000)$40,000Here are four questions for your response:What is a possible explanation for the increase in 2020 projected performance, based on the data presented?
What analysis can you perform to support your explanation?
You’ve set up a telephone call with the investment banker to review the data, including the 2020 projections.What questions will you ask with respect to the four-year historical trend and the 2020 projection?
What additional information would you likely be requesting to help understand the trends at play?
done24 mins agoquestion 5. You’re the director of new business acquisitions at Pearl’s Famous Jam, Inc. and in late 2019 you received a preliminary ‘tickler’ from an investment banker regarding a target company represented by the investment banker. It asks whether you’re interested and, if so, includes a Non-Disclosure Agreement (“NDA”) that you can sign and return. Once received, you’ll be given a detailed Confidential Information Memorandum (“CIM”). The company may be of interest to Pearl’s Famous Jam, Inc. because it is a leader in a new, fast growing category in your industry, which otherwise is somewhat mature.The preliminary document includes the following summary of recent and projected financial performance:20182019P2020P2021P2022Revenues$4,000$6,000$10,000$14,000$16,000Projected EBITDA Margin %10.0%15.0%20%20.%20.0%Free Cash Flow$100$700$1,800$2,500$3,000The document also mentions that all manufacturing is conducted at a single facility, which is currently operating at 95% of capacity.As you review the document and make some preliminary calculations, your skepticism increases and a number of questions come to mind that you hope are answered to your satisfaction in the CIM, which of course you’ll want to see.What are those questions?
What observations or analysis gives rise the questions you wish to ask?
Requirements: Successfully answer the questions

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