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Added on 2019-09-30
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JB HI- FI COMPANY MERGED WITH GOOD GUYSCOMPANYAmalgamation and MergerAcquisition analysis of newspecial-purpose truckBusiness Finance
EXECUTIVE SUMMARYWith the ramified economic changes, there are several financial analysis toolswhich could be used by company to evaluate the post-merger and pre-merger optionsavailable for the company. The capital budgeting tool is used to evaluate the financialperformance of company and its associated benefits with the proposed project. In this report,net investment to buy the new truck project has been analyzed by evaluating the cash outflowand NPV of the project. This report reveals the details analysis of the pre and post-mergerfinancial position of JB Hi-Fi Company. . 1
Table of ContentsEXECUTIVE SUMMARY........................................................................................................2INTRODUCTION......................................................................................................................4(a)What is the net investment in the truck project? (That is, what is the Year 0 net cash flow?)6(b)What are the operating cash flows in Year 1 & 2?.........................................................6(c). what is the NPV of this project?..........................................................................................7Market capitalization of the JB HI- Fi Company after takeover of Good Guy Company.....8Financial performance analysis of the JB Hi- Fi Company pre and post-merger with the GoodGuy Company............................................................................................................................9Computation of the cost of equity of company....................................................................13Cost of equity of company...............................................................................................13Computation of the Post-Merger stock Price of JB Hi- FI Company..............................14Recommendation and conclusion............................................................................................15References................................................................................................................................16Appendix..................................................................................................................................182
INTRODUCTIONThe project selection and evaluation is critical process which helps in identification ofthe possible benefits and losses to organization after accepting the project. The capitalbudgeting tool, top down analysis, bottom up analysis, du pont analysis are used to analysisthe financial performance of company. This report will focuses on the financial performanceof company and how well company will functions after accepting the new truck project. Description of the JB Hi- Fi Company It is an Australian Company indulged in consumer goods selling and specialised in theelectronic video games, HD ultra-blue rays and retail selling of the DVD and CD electronichardware appliances. All the employees are accustomed to act as per the directions of CEORichard Murray. The current share price of company has been traded atJBH(ASX)A$25.00-0.28 (-1.11%). Currently, total turnover of JB Hi-Fi Companyincreased to AUD $ AUD $ 1125 billion. The net profit and overall turnover of JB Hi-FiCompany has increased by 12% after merging with the Good Guy Company (JB HI-FI,2017).During the research, it was found that JB Hi- Fi Company acquired Good GuyCompany with a view to strengthen its busienss outcomes and grabbing more market share byusing the loyalty card and manpower of Good Guy Company. 3
(JB HI-FI, 2017).4
(a)What is the net investment in the truck project? (That is, what is the Year 0 net cash flow?)The net investment is the amount of cash outflow which is required to accept the particular project. The net investment in the truck project is the amount of consideration paid to truck project seller (Garrett, Hoitash & Prawitt, 2014).Computation of the cash outflow for acquiring the new truckParticular Amount in $Initial investment $ 50,000.00 Additional costing $ 10,000.00 Inventory costing $ 2,000.00 Total Initial cash outflow $ 62,000.00 (b)What are the operating cash flows in Year 1 & 2?The operating cash outflow is the amount of cash inflow which company would have after accepting the particular project. It will be the possible benefits which company would have if the truck project is accepted in company (Kundakchyan, & Zulfakarova, 20140.DataYearYearYearParticular012Total sales $ - $ 20,000.00 $ 20,000.00 (-) Variable Costs $ - $ - $ - Contribution $ - $ 20,000.00 $ 20,000.00 (-) Fixed Cost $ - $ - $ - Net Profit $ - $ 20,000.00 $ 20,000.00 (-)Depreciation $ - $ 0.50 $ 0.50 Net Profit before Tax $ - $ 19,999.50 $ 19,999.50 (-) Tax @40% $ - $ 7,999.80 $ 7,999.80 Net Profit after tax $ - $ 11,999.70 $ 11,999.70 (+) Depreciation $ - $ 5,500.00 $ 5,500.00 Cash Inflows $ $ $ 5
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