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Copy of American Chemical Corporation Case Study

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Meiying Ji

on 20 October 2013

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Transcript of Copy of American Chemical Corporation Case Study

American Chemical Corporation Case Prensentation

Stanley Chen Paul Williams Reutemann
Christie Rainaldi Zhiemei Deng
Finding the equity B for Dixon
Average the Asset B of comparable frims=1.09
International Minerals and Chemicals
Brunswick Chemical
Southern Chemicals
Bequity for Dixon=Basset*[1+ (1-T)*D/E]=1.4
D=35%, T=48%
1st step
2nd step
Cost of Equity
(cc) image by nuonsolarteam on Flickr
Finding the Risk Premium
Last Step
Finding the risk-free rate
Re=Risk Free Rate + Risk Premium (Beta)
= 9.5% + (7.9%)(1.4) =21%
take the Long term Treasury Bonds interest rate of 9.5% as our Risk Free rate
Team Six

Market risk premium = expected market return - risk-free rate

We will use the average s&p 500 index from 1975-1989 which equals to 17.4% as a proxy for expected return of the market.

Thus, Risk Premium=17.4%-9.5%=7.9%
the after tax cost of debt is (1-0.48)*11.25%= 5.85%
WACC=0.35*5.85%+0.65*21% = 15.6975%=16%
Without Laminated Technology: NPV = ($2346.01)
Laminated Technology: NPV = $8731.99
The mixed result of both scenarios is $8731.99 + ($2346.01) = $6385.98
not approve the acquisition of the Collinsville plant
hold off on the acquisition and instead raise capital over the upcoming years in order to invest in a project with updated technology
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