Capital Structure-Mercury Athletic Case
The last page of the Mercury Athletic case mentions at least two possible sources of value creation not captured in Liedtke's base case scenario: a significant reduction in Mercury's days sales in inventory (DSI) and a possible combination of Mercury's and AGI's women casual lines.
- (a) Using Liedtke's base case projections, estimate the value of Mercury using a discounted cash flow approach without considering any possible synergy effect.
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Base Case Assumptions
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Marginal Tax Rate
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40.0%
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Debt Beta
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0.0
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Risk Free Rate
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4.93%
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Market Risk Premium
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5.00%
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Debt to Value ratio
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20%
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Cost of Debt
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6.00%
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- (b) Describe the effects on Mercury's financial model if Mercury's DSI (Day Sales Inventory) is reduced by 30% to the same level as AGI's?
- (c) Describe how you would analyze possible synergies or other sources of value not reflected in Liedtke's base case assumptions.