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This case asks you to evaluate a potential acquisition by Sterling.  The purchase price is fixed at $265 million.  Your task is to determine whether or not the acquisition creates value for Sterling at this price. 

Please complete an analysis that covers the following steps.

Compute an appropriate risk-adjusted discount rate using comparable companies in the germicidal, sanitation and antiseptic sector and the 30% debt to 70% equity.  Be sure to compute asset betas.

Compute after-tax cash flows using the operating income data in Exhibit 6 adjusted for taxes, depreciation, PP&E investments and working capital investments.  You should then extend the pro forma information for another 5 years.  For the last 10 years of the project's life (2023 through 2032) use the assumption in the case that the value is a 9 times multiple of the 2022 free cash flow.

Compute the NPV using your risk-adjusted WACC.

Modify the cash flows to incorporate the expansion opportunity.

Compute the NPV of the acquisition with the expansion opportunity.

 

FNCE6310-Financial Decisions and Policies

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