The Jetstream of Success - Book Report/Review Example

the split with the existing sterling operation was well affiliated, enabling Sterling to broaden its market bargaining its competency.

The leveraged asset beta is a serious risk for the company.  The company does not consider the impact of debt leverage and inherent systematic risk in the company. The levered beta means the business risk accounting for the company’s capital structure. The project under review is not swapped since the beta of the company observed does not exist.

Question 2

Free cash flow = operating cash flow-capital expenditure-increase in networking capital investment

Increase in net working capital

                       Accounts receivables 346-415 = 69

                       Inventories                     231-229 =2

                      Other current assets       96-92      =4

                                                                    Total                                              =75

                       Accounts payable            243-254 =11

                        Bank notes payable           181-275= 94            

                         Accrued liabilities            299-290 =-9

                                                                      Total                                             = 96­­

                                                                        Total   96+75                            =171                                 

    Capital expenditure year                            

                       Year 2013                                     =       60

                        Year 2014 to 2022             0.6*9   =        5.4            

                                                        Total                                                            = 65.4

Operating cash flow

                   Net profit before tax and interest    =    574

                      Interest expense paid                     =    76            

           Depreciation= cost-salvage value/useful life

                                        265-0/20= 13.25

                                                                     13.25*10 = 132.50

                          Total                                                        574 + 76 + 132.50 = 782.5

Free cash flow                                                       782.5-171-65.4                     = 546.1

Free cash flow from 2013 to 2022

                                        546.1 *10 =   5461

Question 3

Determination of NPV

Year              cash flow     PV’S

2013                546.1            546.1[1+O.178] -1 =463.58

2014             546.1              546.1[1.178]-2 =393.53

2015                546.1              546.1[1.178]-3=334.07

2016                  546.1                546.1[1.178]-4=283.59

2017                   546.1             546.1[1.178]-5=240.74

2018                 546.1               546.1[1.178]-6=204.36

2019                  546.1                 546.1[1.178]-7=173.48

2020                546.1                546.1[1.178]-8=147.27

2021                  546.1                 546.1[1.178]-9=125.02

2022                546.1                   546.1[1.178]-10=106.13

                                                                 Total PV             = 2471.77

NPV=   total PV – initial cost

          2767.79-265 =2206.77

NPV=2206.77

Question 4

Strategic issues associated with the proposed acquisition

Performance and technological factors

Sterling household product companies should have in-depth knowledge of the acquired products to understand the technology underlying the product to be obtained. The company should also compare the acquired products to its alternatives and the risks involved in both the alternative and the products to be purchased (Julian).

Organizational factors

Sterling household product company should develop the capabilities of the management team and establish whether it has enough staff to handle the new acquisition including its complexity. The company should also examine the risks associated with the structure of the organization, management team skills, and staffing gave the investment requirements and objectives.

Management information system requirements

Sterling household product companies should consider the type of management information system that will be used to monitor the performance of the newly acquired product. Besides, the company should present the methodology it will use to evaluate data performance, costs, and schedule.

Uncertainties or trends that would make the purchase more or less attractive, in both financial and strategic terms.

Sterling household product company should consider the cost of acquisition of the product as compared to the profits it will generate. In addition, the company should analyze the risks associated with the acquisition of the products in order to set up a plan on how to manage such risks. Moreover, the company should establish the useful life of the acquired investments and evaluate the associated returns over its useful life.

Question 5

The net present values of the project to be undertaken by Sterling Product Company reflect a positive figure. I recommend that the acquisition by Sterling Household Company should be made since its NPV is active. The positive net present values depict that the project will generate profit for the company over its useful life hence should be taken.