Monmouth Case Sol.

There are many reasons as to why Robertson is an attractive prospective acquisition for Monmouth. First, it is important to look at the three criteria in which Monmouth evaluates all of its prospective acquisitions. That is, does the company have the potential to become a major player in the industry, the industry must be fairly stable with a product line of small ticket items, and lastly the company must be a leading company in their respective market segment. All of these concerns are addressed in the Robertson Tool Company, as Messrs, Vincent and Rudd show the potential growth in the Robertson Company due to prospectively canceling some of the duplicative departments such as sales and advertising, cutting down Cost of Goods Sold while still keeping the business purpose in sight and also because of the great strength the company has, which is its strong distribution system. The analysis done by Monmouth shows that there is great potential for growth, shown in the forecasts which have great growth with increased ratios across the board. The second requirement is definitely fulfilled, as the Robertson Company is all about tool sales, therefore the type of business that Monmouth finds most attractive. The third requirement is also addressed somewhat well with the first, as Monmouth makes it known that there is great growth potential available for Robertson Company.

The Cost of Equity is found to be 11.30% using the rate for a 30 Year Treasury bond, the estimated Market Risk Premium of 6% and the average industry beta which is 0.96, but I feel there should be a bit added because of the uncertainty with the future of the company, therefore a beta of 1.2 will be used. The cost of debt is 7.96% when being most conservative, using the BB U.S. Corporate Bonds Rating. The ratio of debt to value is 16/47 = 34% while the equity ratio is 31/47 = 66%. Therefore setting up the WACC equation in the “WACC” sheet of the excel document gives a Weighted Average Cost of Capital of...