financial valuation

2. 2
SERIAL NO. NAME MBA ID
01 Minhaj Bin Islam 16-554
02 Md. Anower Hossain 16-607
03 Shaykha Sultana 16-683

3. 3
Dr. M Sadiqul Islam
Professor
Department of Finance
University of Dhaka

4. Case-17
4
• Paramount Equipment,Inc.

5. Paramount equipment,Inc. is based in fort Wayne,Indiana. It was founded in 1987.It had
become one of the largest construction-equipment producers worldwide by 2000.At that
point Paramount had manufactured in 24 countries and distributed to more than 30
countries.
Paramount has operated in three market-
Cranes and compact construction equipment
Aerial work platforms
Food service equipment

6. Competition
within
Industry
Threat of New
Entry
Power
of
Buyers
Power of
Suppliers
Threat of
Substitution
Rivalry
6
Porter´s Five Forces analysis demonstrated how powerful the rivalry is in this industry as
well as the Strategic Groups showed how important technology is for a successful business
strategy .
Without differentiated
products, moderate
concentration and a negative
growth rate the intensity of
the competitive rivalry is high-
moderate
Because of Investment, Fix Costs,
Know-How and Brand
Differentiation, threat of new entry
is Low.
The rest of the services do not
have substitute products
either .So Threat of
substitution is low.
Bargaining power of the
customers is high Because
they could leave the firm at
any moment and go to
competitors.
Because of the infrastructures
are necessary for the
companies, the bargain power
of the suppliers in the industry
is very high.

7. 7
Political
• Not Free from direct
political influence
• Government has
impact on debt market
Economical
• Economic crisis set off
many unfavorable
situations in cyclical
market.
Social
Construction works
reduced in many
countries

8. 8
Technological
• A little change in
this dimension has a
direct impact on the
industry.
Environmental
• Strict environment
protection act.
• Take some ecologic
measures
Legal
• Recent financial
crisis pose restriction
in credit market

9. Ratio Analysis…….
9
Liquidity Analysis
YEAR 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Current ratio 1.27 1.40 1.20 1.32 1.19 0.96 0.61 0.63 0.64 0.62
Quick Ratio 0.54 0.69 0.61 0.50 0.48 0.46 0.37 0.50 0.52 0.52
Efficiency Analysis
YEAR 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Total Asset Turnover 0.62 0.53 0.61 0.69 0.67 0.69 0.69 0.73 0.72 0.76
Receivable Turnover
Ratio 8.51 6.36 7.34 8.82 8.95 9.46 9.55 7.83 5.97 6.30

10. Ratio Analysis…….
Leverage Ratio
YEAR 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Total Debt to Equity 29% 72% 71% 106% 98% 108% 108% 135% 137% 165%
Debt to Total Assets 17% 30% 29% 35% 33% 32% 27% 28% 25% 29%
Profitability Analysis
YEAR 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Net Profit Margin 4% 4% 3% 2% 3% 4% 2% -3% -8% -5%
Gross Profit Margin 26% 27% 27% 25% 25% 27% 26% 24% 24% 24%
ROA 3% 2% 2% 1% 2% 3% 2% -2% -6% -4%
ROE 5% 5% 4% 4% 6% 8% 6% -10% -31% -24%

11. Business and financial risk
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Z Score
Z Score

12. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Operating leverage 0.5962952940.821360251-0.14772047620.895524071.327149469-0.334384175-7.54078938719.9446366816.05402098
-10
-5
0
5
10
15
20
25
Operating leverage

13. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
DFL 3.68421053 2.70909091 1.18018018 0.93220339 1.27388535 1.85889571 1.07619048 -0.6996466 -1.5131579 -0.9145729
-2
-1
0
1
2
3
4AxisTitle
DFL

14. Problem Statement
Paramount reported a net loss of $209 million for its fiscal year 2008. It
faced a severe debt load following it pre 2008 acquisition and capital
investment strategy.
Despite efforts including cut its workforce, reducing manufacturing
space to generate cash flows and reduce debt its operating loss
continued.
At this stage Paramount’s creditors, employees , customers, and
suppliers wondered whether the company could restructure and
emerge from financial distress.

15. Alternatives
•Negotiation with bank lenders around the world to extend loan maturities,
amend loan terms.
•Continuing talking with Canadian provincial govt on funding guarantees.
•Approaching existing and new shareholders for a new security issuance.
•Divest assets in compact construction equipment production and expanding
food service production equipment.

16. Base Case
3 years 3 years 4years
sales growth 0% 3% 7%
COGS 60% 50% 40%
SG&A expense 11%
Depreciation and amortization 7%
R&D expense 3%
Interest expense 18% 17% 15%
Income taxes 35%
NWC 8%
wacc 27% 27%
Bankruptcy Cost 40% 40%
Probability of Distrees 80%
terminal growth 2%
Risk free rate 5.00%
Rm 5.00%
Beta 1.5
Cost of equity 13%
Cost of Debt 18%
Cost of Debt after tax 11.70%
Value of equity 1267
Value of debt 2,096
Weight of equity 0.376746952
Weight of debt 0.623253048
Debt/Equity ratio 1.6543015
WACC 12.00%
Country risk premium 4.50%
Foreign exchange risk premium 2.50%
Bankruptcy Premium 5.50%
Business +fin risk premium 2.00%
Adjusted WACC 26.50%
Enterprize Value 6363.874244
Debt 2096
Distress Cost 2165.626405
Cash 433
Equity Value 2,535
Share outstanding 207
Value per share 12.28
• Increasing commodity
price
• Softening demand
• Deteriorating wealth
• Cyclical nature
Business risk is high
Financial risk is high also.

17. Forecast values
Trials 10,000
Base Case 12.28%
Mean 13.97
Median 11.95
Mode ---
Standard Deviation 0.64
Variance 0.40
Skewness 0.1288
Kurtosis 3.02
Coeff. of Variation 0.0803
Minimum 9.54
Maximum 14.57
Range Width 5.04
Mean Std. Error 0.01Here CV is .0803 that means lower than 0.50.
So risk is lower.

18. Here Adjusted WACC is highly sensitive to the value per share and 50%
Probability of remaining value per share ranging from $12.20-$12.40.

19. Alternative-02(Govt. Guarantee)
Risk free rate 5.00%
Rm 5.00%
Beta 1.4
Cost of equity 12%
Cost of Debt 18%
Cost of Debt after tax 11.70%
Value of equity 2067.00
Value of debt 2,096
Weight of equity 0.496517
Weight of debt 0.503483
Debt/Equity ratio 1.01403
WACC 11.85%
Country risk premium 4.50%
Foreign exchange risk premium 2.50%
Bankruptcy Premium 5.50%
Cyclical firm risk premium 2.00%
Adjusted WACC 26.35%
Enterprise Value 6406.373705
Debt 2,096
Distress Cost 2180.088972
Cash 433
Equity Value 2,563
Outstanding share 272
Value per share 9.44

20. Statistics: Forecast values
Trials 10,000
Base Case
9.44
Mean 10.14
Median 9.12
Mode ---
Standard Deviation 0.62
Variance 0.39
Skewness 0.1405
Kurtosis 2.97
Coeff. of Variation 0.0767
Minimum 6.05
Maximum 10.70
Range
Width 4.65
Mean Std. Error 0.01
Here CV is .0767 that means lower than 0.50.
So risk is lower.

21. Here Adjusted WACC is highly sensitive to the value per share and 90%
Probability of remaining value per share ranging from $8.80-$9.20.

22. Alternative-3(Loan Reschedule)
Risk free rate 5.00%
Rm 5.00%
Beta 1.5
Cost of equity 13%
Cost of Debt 20%
Cost of Debt after tax 13.00%
Value of equity 1267.00
Value of debt 2,096
Weight of equity 0.37675
Weight of debt 0.62325
Debt/Equity ratio 1.6543
WACC 12.81%
Country risk premium 4.50%
Foreign exchange risk premium 2.50%
Bankruptcy Premium 5.50%
Cyclical firm risk premium 2.00%
Adjusted WACC 27.31%
Enterprise Value 6162.652999
Debt 2096
Distress Cost 2097.150816
Cash 433
Equity Value 2,403
Outstanding share 207
Value per share 11.63

23. Statistics Per share Price
Trials 10000
Base Case 12.81
Mean 12.90
Median 12.07
Mode ---
Standard Deviation 5.98
Variance 35.79
Skewness 1.14
Kurtosis 6.37
Coeff. of Variation .0634
Minimum -3.76
Maximum 74.97
Range Width 78.73
Mean Std. Error 0.06
Here CV is .0634 that means lower than 0.50.
So risk is lower.

24. Here Adjusted COGS is highly sensitive to the value per share and 90%
Probability of remaining value per share ranging from $11.20-$11.80.

25. Alternative-4(New Security Issuance)
Risk free rate 5.00%
Rm 5.00%
Beta 1.5
Cost of equity 13%
Cost of Debt 18%
Cost of Debt after tax 11.70%
Value of equity 3467.00
Value of debt 896
Weight of equity 0.79464
Weight of debt 0.20536
Debt/Equity ratio 0.25844
WACC 12.34%
Country risk premium 4.50%
Foreign exchange risk premium 2.50%
Bankruptcy Premium 5.50%
Cyclical firm risk premium 2.00%
Adjusted WACC 26.84%
Enterprise Value 6289.477857
Debt 2096
Distress Cost 2140.309315
Cash 433
Equity Value 2,486
Outstanding share 407
Value per share 6.12

26. Statistics Per share Price-bond
Trials 10000
Base Case 6.12
Mean 6.58
Median 6.57
Mode ---
Standard Deviation 1.31
Variance 1.71
Skewness 0.0692
Kurtosis 3.12
Coeff. of Variation 0.0786
Minimum 1.94
Maximum 12.25
Range Width 10.31
Mean Std. Error 0.01
Here CV is .0786 that means lower than 0.50.
So risk is lower.

27. Here Adjusted COGS is highly sensitive to the value per share and 90%
Probability of remaining value per share ranging from $4-$6.

28. Alternative-5(Divest Assets)
Enterprise Value 7507.19837
Debt 1602.365
Distress Cost 2554.699605
Cash 633
Equity Value 3,983
Outstanding share 207
Value per share 19.29
Risk free rate 5.00%
Rm 5.00%
Beta 1.4
Cost of equity 12%
Cost of Debt 18%
Cost of Debt after tax 11.70%
Value of equity 1267.00
Value of debt 1,602
Weight of equity 0.441561112
Weight of debt 0.558438888
Debt/Equity ratio 1.264692186
WACC 11.83%
Country risk premium 4.50%
Foreign exchange risk
premium 2.50%
Bankruptcy Premium 5.50%
Cyclical firm risk premium 2.00%
Adjusted WACC 26.33%

29. Statistics: Forecast values
Trials 10,000
Base Case 27.3908
Mean 19.29
Median 23.37
Mode ---
Standard
Deviation 7.88
Variance 62.02
Skewness 0.9814
Kurtosis 4.74
Coeff. of Variation 0.0521
Minimum 7.47
Maximum 74.05
Range Width 66.58
Mean Std. Error 0.08
Here CV is .0521 that means lower than 0.50.
So risk is lower.

30. Here Adjusted COGS is highly sensitive to the value per share and 90%
Probability of remaining value per share ranging from $16-$22.

31. Decision
Enterprise
value WACC Share price CV
Base case 6363.8742 27% $12.28 0.0803
Govt. Guarantee 6406.3737 26.35% $9.44 0.0767
Loan Reschedule 6162.653 27.31% $11.63 0.0634
New security issuance 6289.4779 26.84% $6.12 0.0786
Divest assets 7507.1984 25.42% $19.29 0.0521

32. Financial institution are
extremely cautious about
new credit line and credit
practice.
Resistance in Canada to
bailing out a private
multinational company.
Firm that is losing money
will not be attractive to
investors.
Lack of confidence seen in
existing shareholder.

33. T-Rex Limited
Net sales 71,513 63,798 77,814 52,113 57,345
Operating profit 10,342 9,094 7,690 3,936 652
Net income 6,156 5,403 4,325 1,484 -304
Assets 45,079 44,504 55,189 40,855 52,576
Short-term debt 230 232 2,527 1,246 1,223
Long-term debt 14,820 18,611 24,389 20,908 20,908
Total liabilities 26,648 30,422 38,281 27,190 31,430
Shareholders 'equity 18,431 14,082 16,908 13,695 21,146
Capex (net of sale of PP&E)/assets 0.05 0.05 -0.02 -0.03 0.03
Operating margin 0.14 0.14 0.1 0.08 0.01
Profit margin 0.09 0.08 0.06 0.03 -0.01
Sales/assets 1.59 1.43 1.41 1.28 1.09
STD/assets 0.01 0.01 0.05 0.03 0.02
Total debt/assets 0.33 0.42 0.49 0.54 0.42
Interest coverage 11.87 11.62 7.42 2.63 0.51

34. McKale Food-service
equipment Corp.
Net sales 819 911 1,081 1,083 1,282
Operating profit 166 222 246 297 300
Net income 85 114 123 144 155
Assets 2,289 2,757 3,256 3,118 3,132
Short-term debt 317 507 593 549 507
Long-term debt 618 612 605 518 514
Total liabilities 1,601 1,854 2,282 2,034 1,826
Shareholders’ equity 688 903 974 1,084 1,306
Capex (net of sale of PP&E)/assets 0.1 0.13 0.03 -0.04 -0.01
Operating margin 0.2 0.24 0.23 0.27 0.23
Profit margin 0.1 0.13 0.11 0.13 0.12
Sales/assets 0.36 0.33 0.33 0.35 0.41
STD/assets 0.14 0.18 0.18 0.18 0.16
Total debt/assets 0.41 0.41 0.37 0.34 0.33
Interest coverage 4.61 4.81 4.34 4.32 4.38
Net sales 5,459 6,510 7,205 6,015 5,575

35. ANY
QUERY????

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