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Macy’s Inc.
Using the principles and tools outlined in the textbook, complete a Capital Structure Analysis, Capital Budgeting Analysis and form Funding Growth Strategies for the Firm. You must also compile a bibliography and list of data/sources.
Part VI: Capital Budgeting Analysis, Capital Structure Analysis and Funding Growth Strategies, and Bibliography and Data (due Week 8)
Capital Budgeting Analysis (30 points): You have been asked to evaluate a potential acquisition of a smaller privately-owned competitor. The acquisition candidate produces an EBITDA of 10% of your current EBITDA and is offered to your firm at a price of multiple of 8 times EBITDA. Assume the following:

  • Current debt costs you 8% and you can raise additional debt at this rate today. The loan is to be amortized over 7 years.
  • Current return on equity is 15%
  • Current WACC is 10%
  • Tax rate is 30% (constant)
  • 80% of the purchase price is considered depreciable assets – to be depreciated over ten years on a straight-line basis with no residual values.
  • Residual value for this operation is to be 2x current EBITDA in year ten.

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Macy’s Inc. Using the principles and tools outlined in the textbook, complete a Capital Structure Analysis, Capital Budgeting Analysis and form Funding Growth Strategies for the Firm. You must also compile a bibliography and list of data/sources. Part VI: Capital Budgeting Analysis, Capital Structure Analysis and Funding Growth Strategies, and Bibliography and Data (due Week 8) Capital Budgeting Analysis (30 points): You have been asked to evaluate a potential acquisition of a smaller privately-owned competitor. The acquisition candidate produces an EBITDA of 10% of your current EBITDA and is offered to your firm at a price of multiple of 8 times EBITDA. Assume the following: Current debt costs you 8% and you can raise additional debt at this rate today. The loan is to be amortized over 7 years. Current return on equity is 15% Current WACC is 10% Tax rate is 30% (constant) 80% of the purchase price is considered depreciable assets – to be depreciated over ten years on a straight-line basis with no residual values. Residual value for this operation is to be 2x current EBITDA in year ten. Create an after-tax cash flow analysis to answer the following: Economic analysis: is this a fundamentally sound investment? Using the tax cash flows and no debt (pure equity), is the prospect a positive NPV using ROE as the hurdle rate? Using the after-tax cash flows and the firm’s WACC, is this project desirable? Explain how you came to this conclusion. Capital Structure Analysis and Funding Growth Strategies (80 points): Imagine your firm has some attractive investment opportunities that it is considering. The capital budgeting process has been completed and found that these projects have a positive NPV and are desirable. The firm must raise financing for the projects in the amount equal to 5% of the current level of its total assets. As you know, these funds can come from a number of sources: operations, short-term debt, long-term debt (new bond issues), or equity (new stock…

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