The Timken Company to Acquire Torrington Essay

Free cash flows of the project for next five years can be calculated by adding depreciation values and subtracting changes in working capital from net income. In 2010, there will be a cash outflow of $2.2 million as capital expenditure. In 2011, there will be an additional one time cash outflow of $300,000 as an advertising expense. Using net free cash flow values for next five years and discount rate for discounting, NPV for the project comes out to be $2907, 100. The rate of return at which net present value becomes zero i.e.

NPV analysis uses future cash flows to estimate the value that a project could add to a firm’s shareholders. A company director or shareholders can be clearly provided the present value of a long-term project by this approach. By estimating a project’s NPV, we can see whether the project is profitable. Despite NPV analysis is only based on financial aspects and it ignore non-financial information such as brand loyalty, brand goodwill and other intangible assets, NPV analysis is still the most popular way evaluate a project by companies.

2. Do you favor the proposed acquisition of UCP? What are the primary sources of value in such a transaction? Is the proposed price reasonable?

The NPV compares the inflow of cash against the flow of cash to make the investment. With the cash flows occurring over a period of time, NPV also takes into account the cost of capital. The cost of capital or discount rate allows the company to weigh the present value of capital today with the investment capital’s present value. Futronics Inc. investment would have an NPV of $138,642.39. The NPV of this investment would add value to Futronics Inc.’ worth.

By using the 7.2% after tax rate and assuming the equipment will be sold at the beginning of the 5th year for its book value, if Agro-Chem bought the equipment the company would achieve a project NPV of ($1,043,500.23). In contrast, if Agro-Chem decided to lease the equipment with the same assumptions they would obtain a project NPV of ($1,030,205). Given these assumptions and based off our calculated NPV we recommend that Agro-Chem lease the equipment rather than buy because of the $13,295.23 savings. This $13,295.23 savings is the NAL.

During the period of 5 years (from 1994 to 1998), if the discount rate is 20%, Waltham plant is the only one that has a positive amount in NPV. The total net present value of this plant is approximately $6.4 million, while the other two plants have a negative number (Santa Clara: negative $3,882,499; Greenfield: negative $29,386,827).

For the corporation that has acquired another company, merged with another company, or been acquired by another company, evaluate the strategy that led to the merger or acquisition to determine whether or not this merger or acquisition was a wise choice. Justify your opinion.

With this acquisition, Timken could break into and dominate the European market and use it as the leverage to be the leader in bearing industry.

2. The current NPV is negative. One way to save money would be to reduce consulting costs. Please set the average consulting cost per month in cell b33 to $5000. At what discount rate is the NPV for the project 0?_____0.026____

From our DCF calculations, the value of Torrington as a stand-alone entity is $1.181 billion. However, the maximum purchase price for Torrington should only be $641 million. The optimum debt amount for this transaction would be $301 million. This amount of debt would result in a total debt to capital ratio for Torrington of 47%, within the range for a BBB “investment grade” debt rating. The combined entities, Torrington-Timken, would produce an interest coverage ratio of 3.2, and a debt ratio of 45%, again within the range for a BBB “debt rating. The purchase would likely be a cash transaction.

Excluding preproduction sunk costs, including a cost of capital 16%, and sales of 113 units and a per unit sales price of $16 million, the net present value (NPV) of continuing with the Tri Star is -$ 1,829,666,246.

Later Rayovac Company’s (spectrum) diversification into other four industries could have been lead by the attractiveness these companies as seen in the attachments (attachment A), the first acquisitions of Remington Products Company and United Industries Corporation had very good scores on the basis of attractiveness weighted score at 7.70 and 7.1 respectively which analyst would say was way above the averages. The other two acquisitions which had an almost related

As the Torstar board meeting in April of 1998 was approaching, a memorandum on Torstar’s dividend policy, their repurchases and their strategy with regards to strategic acquisitions within their three business areas was composed. The memorandum included pros and cons as well as recommendations with regards to the issues to be discussed when the board gathered for their meeting. The dividend policy and the share repurchase strategy are the main issues since the institutional shareholders preferred Torstar’s historical share repurchases and historical dividend pay outs. Management has during the last years focused on acquisitions, especially in order to diversify their business through the children’s supplementary education products (CSEP)

The first two acquisitions by TEOCO involved organizations with relatively few employees. However, the last one involving TTI was a rather ambitious one because TTI had 300 employees, presenting financial challenges as well due to its size. While these acquisitions help to increase TEOCO’s value, profitability through cross-selling, diversity in employee skills and products/services, synergy, competitiveness, and output potential, they also bring about challenges such as culture clash, integration of key functions, management and HR challenges, and organization (Rice, Liao, Mart & Galvin, 2012). These challenges are likely to slow down performance, hence profitability due to the time involved in the integration process. As TTI is based in Israel, this particularly presented a big challenge for TEOCO although this also presents significant opportunities for cross-selling products and marketing synergies. In my view, TEOCO should focus on acquiring smaller but stable companies as this would facilitate change management, especially with regard to corporate culture and integration (Hitt, Ireland, and Hoskisson, 2011). Alternatively, the company should invest a lot of time in learning the target company if it happens to be a big

TNT N.V. financial gearing is low compared to its competitors. The company could make better use of long-term debt opportunities.