Collinsville Plant Acquisition Analysis
Added on 2020-02-12
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Corporate Finance
Table of ContentsINTRODUCTION...........................................................................................................................3MAIN BODY..................................................................................................................................31. Estimating the average cost of capital for discounting Collinsville plant’s incremental cashflows............................................................................................................................................3TASK 2&3.......................................................................................................................................4Projection of Incremental cash flows and net present value for Collinsville Plant.....................4CONCLUSION................................................................................................................................6REFERENCES................................................................................................................................7
INTRODUCTION Field of corporate finance is highly concerned with the development of highly suitableand optimal capital structure. The rationale behind this, both such elements have high level ofimpact on the financial position and performance of the organization. This project report is basedon the case situation of Dixon Corporation which will provide deeper insight about the aspectthat firm need to invest in the plant or not in accordance with WACC, CAPM and NPV method. MAIN BODY 1. Estimating the average cost of capital for discounting Collinsville plant’s incremental cashflowsIn this, Pennwalt and Kerr-Mc Gee are the major producers of Sodium Chlorate. Hence,by making assessment of average rate of debt and capital Dixon Corporation can identify thelevel of risk in the best possible way (Kumar and Mishra, 2016). The rationale behind theselection of Pennwalt and Kerr-Mc Gee is that they are the leading firms who produce sodiumChlorate. This in turn helps Dixon in developing highly competent and strategic framework forthe near future. Calculation of project beta and CAPMBookDebt/CapitalEquity/CapitalBeta(e)Beta(d)Beta(a)Pennwalt32%68%1.3300.90Kerr -Mc Gee20%80%1.0600.85Average26%74%0.88Project Beta1.18CAPM17.79%Computation of tax rate Particulars1978 (in $)1977 (in $)1976 (in $)1975 (in $)
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