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CASE STUDY 4: CHESTNUT FOOD

ANT-MAN

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Question

1

1. Provide the synopsis and state the issues of the case.

Synopsis of Chestnut Foods

CONT...

ISSUES

CONT...

Question

2

2. Why is Van Muur soliciting control of Chestnut?

CONT...

Question

3

3. Do you agree with Meyer's dinner conversations?

CONT...

Question

4

4. Estimate a risk-adjusted cost of capital for the two business units and comment on whether Meyer's graph is accurate (see Figure 1).

CALCULATION

WACC food processing = 6.64%( 0.48) +2.4%(0,52)

= 4.43%

 

WACC instrument division = 9.64% (0.65) + 2.74%(0.35)

= 7.23%

Question

5

5. How does the choice of a constant versus risk-adjusted hurdle rate affect your valuation of Chestnut's two divisions?

Cont...

Question

6

6. Do you support Pederson's proposal? What recommendation should Pederson make as a respond to Van Muur?

Yes.

Recommendation :

The

End

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