Hi, I need help with essay on Valuation Methods. Paper must be at least 1250 words. Please, no plagiarized work!Download file to see previous pages... In addition, the process of transition immediatel

Hi, I need help with essay on Valuation Methods. Paper must be at least 1250 words. Please, no plagiarized work!

In addition, the process of transition immediately following the merger and acquisition process should be performed delicately so that the goals of the merger and acquisition are brought to fruition. This paper seeks to demonstrate the different aspects of mergers and acquisition using a case of two companies: Triumph and Rustic. Introduction Background to the Case Triumph is of the opinion that acquisition of Rustic, a competitor in the same industry but with a radically different market share, would significantly boost its market penetration, enhance quality in production, and give it immense benefits with regard to economies of scale. As of present, Triumph has a predominantly southern customer base while Rustic has a chiefly northern customer base. The premise for this presumption is the view by Triumph’s CEO that Rustic is underperforming and its shares are undervalued. Hopes regarding the merger and acquisition soar high, with the expectations that the deal will grow the combined business establishment by up to 10%. However, the operating costs will rise by an estimated 5% in the first year. The financing option under consideration involves issuance of long-term bonds to buy out shareholders at Rustic. The bonds will be issued at the current borrowing rate of the two companies. This report analyses the merger and acquisition case for Triumph and Rustic Plc. Value of the combined company Divided Valuation Model Assuming a dividend cover of 2, a constant dividend in perpetuity, and a cost of capital of 20%: Constant dividend DVM Vo = {D(1 + g)/(k – g)} = D/(k - g) g = growth rate of the dividends Vo = value of the firm Di = Dividend in year i k = discount rate, cost of capital Value of Triumph ={5,520,000/0.2) = 27,600,000 Value of Rustic = {2,700,000/0.2) = 13,500,000 Combined Value of the business is = 41,100,000 Divided Valuation Model A dividend covers of 2 Growth in dividend of 10% per year in perpetuity A cost of capital of 20% Constant growth DVM Vo = {(Do(1 + g)/(1 + k)} + {Do(1 + g)/(1 + k)2} + … = {Do(1 + g)/(k – g)} Value of Triumph = {5,520,000(1 + 0.1)/(0.2 – 0.1)} = 60,720,000 Value of Rustic = {2,700,000(1 + 0.1)/(0.2 – 0.1)} = 29,700,000 Combined Value of the new company is = 60,720 + 29,700 = 90,420,000 Shareholder Value Added Approach Shareholder value added approach to valuation of cash flows for the first 5 years with the assumption of growth of dividends in year 6 onwards at an annual rate of 4% in perpetuity, and a cost of capital of 20%. The formula for shareholder value added is Shareholder Value Added = Net Operating Profit after Taxes (NOPAT) – (Capital x WACC) Where WACC is Weighted Average Cost of Capital = 20% NOPAT = Operating Income x (1 – Tax Rate) WACC = (E/V) * Re + (D/V) * Rd * (1 – T) Re = cost of equity = 20% Rd = cost of debt = 5% E = Market value of firm’s equity = 26,000 D = Market value of firm’s debt = 24,960 V = E + D =50,960 E/V = percentage of financing that is equity = 26,000/50,960 = 0.51 D/V = percentage of financing that is debt = 24,960/50960 = 0.49 T = Corporate tax rate = 20% WACC = (0.51)*0.2 + (0.49)*0.05(1-0.20) = 0.102 + 0.0196 = 0.1216 = 12.16% The figures are in ‘000 of GBP Year 1 Year 2 Year 3 Year 4 Year 5 Sales 119,108 131,018.8 144,120.68 158,532.748 174,386.02 Operating Costs -91,770 -104,815.04 -115,296.544 -126,826.1984 -139,508.