FINCHCO CASE Case Solution & Answer

FINCHCO CASE

Question No. 5

We have determined the value of the company with baring contract and without baring contract.  Our calculations are based on the DCF analysis of the company. In the case of value without Baring contract, the cash balance and the value of the Finch properties have been added to the NPV from the DCF analysis. By doing so, the value of the company without baring contract is calculate to be around $45414510.

For the calculation of the value with baring contract, we simply added the benefit from baring contact opportunity into the value of the company without baring contract. The value of the company with Baring contract opportunity is calculated to be around $47404676.

Question No. 6

From the DCF analysis, it could be suggested to the company that the price of the stock accepted by the owner of the company should be equal to or more than $21674000. The value suggested have been derived from the DCF analysis as the overall equity value of the company. The owner must not accept the amount less than this value, as this is the most appropriate value that the owner should accept.

Also, since the number of outstanding shares of the company are 1000, the price per share of the company should therefore be about $21674, that we have calculated by dividing the equity value with the number of shares.

Note: Refer to Exhibit for calculation

Question No. 7

From the overall analysis of the company, it could be said that the owner of the company must be considered to be paid via the combination of shares, debt and cash. The suggestion has been given considering various reasons. The owner of the company must be preferred to paid via cash out of his business windup, because of his dream to purchase a yacht and then sail around the world. This could happen if he is paid in cash.

Furthermore, out of the proceeds from the sale of the company, the fact that the owner could have capital gain in the form of dividends, the owner could be paid in shares from the acquiring firm. The strategic implication of this scenario includes the financial security that the owner could have

Conclusion and Recommendation

From the quantitative analysis, it could be observed that the company’s net income has decreased in recent years which might be because of the bad economic conditions. it is observed that the company spends around 67% of sales on the costs of sales accounts, whereas the EBIT of the company is very less as compared to its % of Sales and that too is declining each year. The probability of materializing Baring operations in the company is 50 pc. It implies that the adjusted value of the company after probability is $1990166. Therefore, it is suggested to the owner to sale the company for optimal results. From the DCF analysis, it could also be suggested to the company that the price of the stock accepted by the owner of the company should be equal to or more than $21674000. We recommend that the owner of the company must be considered to be paid via the combination of shares, debt and cash…..

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