Estimating Valuation for Charlotte Mills

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
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FINANCE 2
Table of Contents
1) Estimating the valuation for Charlotte Mills:........................................................................3
a) Evaluating the components of WACC for the valuation:......................................................3
b) Estimating the value of Charlotte mill to GreenEarth:..........................................................3
c) Indicating whether the estimation will increase or decrease if tax basis is increased:..........4
d) Indicating the transaction price suggested by Stone Corporations recent comparable
transactions:................................................................................................................................4
2) Providing value of the scenario after 5 years:........................................................................5
a) Indicating the vale that will be added from the expansion project to add the value of paper
mill:............................................................................................................................................5
b) Indicating the value that will be added by the expansion project to the paper mill with an
additional cost of $100 million:.................................................................................................6
3) Determining the strategic reasons for the transactions:.........................................................6
4) Advising on the financing of the deal:...................................................................................7
a) Explaining the argument behind the recommendation in detail:...........................................7
b) Indicating the alternation in the decision that will be conducted with the existing mortgage
debt:............................................................................................................................................8
References:...............................................................................................................................10

FINANCE 3
1) Estimating the valuation for Charlotte Mills:
a) Evaluating the components of WACC for the valuation:
Particular Value
Corporate Bond 42.00%
Yield 9.50%
Equity 58.00%
Risk free rate 8.49%
Beta 1.35
Market Premium 7.00%
Cost of equity 17.94%
Tax 34.00%
WACC 13.04%
There are specific components of WACC, which is used for detecting the level of cost
of capital required for GreenEarth. In addition, from the evaluation it can be detected that
WACC is mainly at the levels of 13.04%, which is calculated from cot of equity and cost of
capital. Moreover, the major components of WACC is Debt, Equity and tax rate, which helps
in determining the cost of capital of the firm. The corporate bond composition is 42%, while
equity is at 58%. The cost of debt is calculated at 9.50%, while the cost of equity is 17.94%
with a tax rate of 34%.
b) Estimating the value of Charlotte mill to GreenEarth:
Charlotte Mill 1994 1995 1996 1997 1998
Capex 18 18 18 18 18
Change in working
capital 19.2 33 19.2 9.9 8.1
Free Cash flow 113.1 145.7
223.
2 219.3 223.1
WACC 15%
Growth 5%
NPV $591.58
Terminal Value $2,231.00