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Mercury Athletic Footwear
Transcript of Mercury Athletic Footwear
2003 -Since the acquisition, Mercury sales have
gone downhill and thus WCF decided to sell
the line in 2006. Revenue Growth:3% AGI could enter new market segments and therefore will have the advantage to target the larger market AGI will get contracts with larger manufactures AGI will be able to compete with the big companies potential to double revenues AGI should acquire Mercury AGI could get better conditions from raw material suppliers Potential to double revenues
Increase leverage with manufacturers
Increase long run growth rate
Expand presence with key retailers and distributors. WACC WACC=Weight(Debt) xCost(Debt) x(1-Tax Rate)+Weight(Equity) xCost (Equity) Free Cash Flows FCF = EBIT(1-Tax) + Depreciation - Change in Net Working Capital -Capital Expenditure Weight of Debt 20%
Cost of Debt 6%
Tax Rate 40% CAPM Model
Necessary to calculate Cost of Equity
Rate(Market) 10.96% BETA Beta consists out of 2 parts, Business Risk and Financial Risk
Industry Average 1.481
Industry Average Business Risk only 1.29
Beta relevered with Mercurys Financial Risk 1.484 WACC Weight of Equity 80%
Cost of Equity 13.83%
Weight of Debt 20%
Cost of Debt 6%
Tax Rate 40% Cost(Equity)=Rate(RF)+Beta*(Rate(M)-Rate(RF) WACC=80%x13.83%+(1-40%)x20%x6%
WACC=11.84% Net Present Value -Founded in 1965 Terminal Value=FCF(2011)/(WACC-Perpetual Growth Rate) -Produced high quality specialty shoes for golf & tennis players. 1970-expanded line to casual footwear Brand & logo give sense of wealth, fashion, & an active lifestyle. Today-newly evolved Athletic line makes up for nearly 42% of yearly Revenues Problem: Their small size has become a competitive disadvantage