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RJR Nabisco

 RJR Nabisco Essay

RJR Nabisco

• Some wizard invented the Oreo. We are going to just living

off of the gift of money.

F. Ross Johnson

Fair Market Value

• Fair Their market value: " …the price at which the asset

would transact between two rational persons,

each in command of all the information

required to value the asset, and neither underneath any

pressure to control. ”

Rocky Higgins

Analysis for Financial

Management (p. 318)

Capital Budgeting info

• Step 1 : Estimate Price cut Rate

• Step 2: Job Cash Flows

– Cash flows to get 1989-98 in tables

– Terminal worth

• Step 3: Compute Net Present Worth (NPV)

– Accept great NPV projects

Discount Charge

• As you can see, the low cost rate is a weighted common cost of capital (WACC).

Deb

E

WACC 

Electronic ( rd )(1  t ) 

Elizabeth ( re )

DE

DE

in which t = tax level,

E(rd) = expected expense of debt

D = amount of personal debt in capitalization

E(re) sama dengan expected expense of equity

E = sum of equity capitalization

Price cut Rate

• To calculate the WACC using 1989 figures beneath the three tactics:

5, 204

12, 790

Prebid:

(. 09)(1 . 34) 

(. 168) . 137

5, 204  12, 790

a few, 204  12, 790

11, 186

4, 202

Mgmt:

(. 098)(1 . 34) 

(. 250) . 115

11, 186  4, 202

eleven, 186  4, 202

18capital

, 932 composition changes after some time, we

4115

NOTE:

seeing that

the

need to recompute

KKR:

(. 102)(1 . 34) 

(. 330) the

. 114

WACC each

season

to

reflect

the

alter

in

capital

structure.

18, 932  4115

18, 932  4115

Expected Cash Flows

• Projected cash moves for 1989 are calculated as follows: Add some opuch.

- Exp.

- Depr.

TI

- Tax

Net Inc.

Prebid Mgmt

18, 088

six, 650

13, 429

5, 544

807

777

two, 852

you, 329

KKR

16, one hundred ninety

12, 596

1, 164

2, 435

970

1, 882

452

877

828

1, 607

807

777

1, 159

- Cap. Exp.

1, 708

432

774

- Chg WC

80

41

79

0

901

12, 680

13, 861

3, 500

5, 413

+ Depr.

& Asset

Deal

Net VOIR

Projected Income

• This cash flow stand for the cash flow computed in the tables:

Season

1989

1990

1991

1992

Prebid Supervision KKR

901

13, 861 5413

1385

1486 4909

1856

1768 2526

2528

2062 2745

1993

year 1994

1995

2985

3261

3555

2278

2507

2755

2855

3101

3364

1996

3887

3029

3651

1997

4246

3332

3970

1998

4575

3666

4319

Terminal Value

• To estimate a terminal worth, we need to make an assumption regarding future progress after 1998.

• If perhaps cash flows grow by simply 2 . five per cent per year (and the WACC remains constant), then pertaining to the pre-bid strategy:

4575(1 . 025)

38, 755

. 146 . 025

• For the Management Group scenario:

PV (1998) 

3666(1 . 025)

PHOTOVOLTAIC (1998) 

31, 055

. 146 . 025

• For the KKR circumstance:

PV (1998) 

4319(1 . 025)

36, 587

. 146 . 025

Fatal Value

• Results depends on the growth rate assumption.

• Values over 10 years ago of cash flows for 99 and further than for

several assumptions are (" Level of sensitivity Analysis”):

Strategy

Pre-Bid

0%

31, 336

Management

KKR

Growth Charge

2 . five per cent

38, 755

5%

50, 039

25, 110

thirty-one, 055

forty five, 097

twenty nine, 582

36, 587

47, 239

Present Value

• The present value of the funds flows for the prebid strategy is usually (using the two. 5% progress rate assumption after 1998): ($

millions)

901

1385

1856

PHOTOVOLTAIC 

2

3

1 . 137 (1 . 139)

(1 . 14)

... 

4575  32, 755

22, 607

twelve

(1 . 146)

• This represents the total value of RJR Nabisco (ASSETS).

Present Benefit

• Figure out the value per share of RJR Nabisco to the

CURRENT shareholders, consider the pre-bid valuation:

Total Assets = 22, 607

Current Debts = your five, 204

Collateral = 18, 403

18, 403

PerShare 

70. 34

247. 4

Valuation

• Quotes of the value per talk about under the alternatives

(again, making use of the 2 . five per cent growth level assumption):

Strategy

Total

Personal debt

Equity

Share Price

Prebid

Management

22, 607

31, 593

5204

5204

seventeen, 403

twenty-five, 389

seventy dollars. 34

$102. 62

KKR

29, 278

5204

twenty four, 074

$97. 31

Options for Value

• The company can be...

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