Torrington

To determine the overall value of Torrington we were considered the overall cash flows from 2002 to determine our projections for the later years. When considering the overall operating income produced by Torrington the company was required to omit potential income due to the competition presented by Timken. To calculate the amount of revenue that must be excluded by Torrington, one should multiple the operating profits by the 5% growth rate. This due to the increase in both Torrington’s and Timken overall sales and therefore has no relevant effect on the valuation.

To consider the overall growth of the product we must consider the changes in market share. By determining the range of available growth between 0-10%, we can reasonable estimate a growth rate to determine the value of Torrington. The growth rate is determined through the use of @Risk which aids in applying risk into the overall formulation. With risk incorporated we can use the determined rate and factor it into the Earnings before Interest, Tax, Depreciation and Amortization (EBITDA). This allows us to see that the company is growing at a constant rate of $12000/year.

Once depreciation is included we can determine the amount of savings we could potentially recognize through the acquisition of Torrington. By including @Risk we are able to factor market risk into the formula to provide use with a prediction of $73,300 of cost savings per year. This provides us with sufficient information to begin the free cash flows and the overall valuation of the company.

By determining the free cash flows of the company the terminal value can be determined as $48,847.20 added into the free cash flows gives use the total value of the company before discounted cash flows of $52,176.90. When considering purchasing the company before discounted cash flows Timken must spend $52176.90 to acquire Torrington.

When considering the Discounted Cash Flow the price of Torrington props significantly to 11,678. When...