Mercury Athletic Footwear

Please follow what’s wanted below (read carefully), and do the calculation and work in Excel, thanks!

Mercury Athletic Footwear: Valuing the Opportunity

This assignment is to perform a complete valuation of a potential acquisition of Mercury Athletic Footwear by Active Gear. That is, tell me what Active Gear should pay for Mercury Athletic Footwear.

To do this, be sure you do the following:

(A) Calculate the Cost of Equity (Ke) for Mercury.

(B) Evaluate the financial projections for Mercury made by Liedtke in Exhibits 6 and 7. Are there any projections that are inappropriate? What would you change?

(C) Estimate the value of Mercury using a discounted cash flow analysis (should be just like Example below”) and using Liedtke’s base case projections.

(D) Would you evaluate this valuation as conservative or aggressive? Why? What qualitative or quantitative adjustments would you make to this analysis to make it more appropriate?

And that’s it. Enjoy.

(Hints: Your valuation should probably be more than $50,000,000 and less than $2,000,000,000. If you get a value that is outside this range, you should probably keep trying.)

Mercury Athletic Case

Executive Summary

The footwear industry is highly competitive industry with fairly stable profit margins. Active Gear is a profitable firm in the industry; however Active Gear is a smaller firm than many other competitors and its small size is becoming a competitive disadvantage. The rise of large retailers has also endangered Active Gear’s growth.

Mercury Athletic Footwear designs and distributes athletic and casual footwear dominantly to the youth market. Mercury competes in four main product lines: men’s and women’s athletic and casual footwear. Men’s athletic footwear is the leading product for Mercury Athletic. Women’s casual footwear is Mercury’s worst performing product and post-acquisition the line may be discontinued by Active Gear. The acquisition of the Mercury Athletic division has sources...