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    Case Solution of Case 19

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    Faraz Sj
    This is a financial case solution in PPT format. A solution of Harvard case. Can give insights to students of Finance

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    Case Solution of Case 19

    Uploaded by

    Faraz Sj
    613 views34 pages
    This is a financial case solution in PPT format. A solution of Harvard case. Can give insights to students of Finance

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    Case solution of Case 19

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    This is a financial case solution in PPT format. A solution of Harvard case. Can give insights to students of Finance

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    613 views34 pages

    Case Solution of Case 19

    Uploaded by

    Faraz Sj
    This is a financial case solution in PPT format. A solution of Harvard case. Can give insights to students of Finance

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    You are on page 1of 34

    Welcome

    to our
    Presentation

    Case Analysis
    UAL 2004: Pulling out of
    Bankruptcy

    Prepared for.
    M. SADIQUL ISLAM
    PROFESSOR
    DEPARTMENT OF FINANCE
    UNIVERSITY OF DHAKA

    Group No: 26
    Shahadat

    Hossain. (M.B.A ID: 17-561)


    Muntasir Rahman Khan. (M.B.A ID: 17604)
    Abul Hasan Faraz . (M.B. A ID: 17- 606)

    Now
    Presenting..
    Md. Abul Hasan Faraz
    ID: 17-606

    Problem
    Statement

    Company Profile

    Case Overview

    Economic Analysis

    PESTLE analysis

    Political

    Economic

    Social

    Technological

    Legal

    Environmental

    Porters Five Forces model

    SWOT Analysis
    Strengt
    hs

    Weakne
    ss

    Opportuniti
    es

    SWOT

    Threat
    s

    Risk Analysis
    Sales Variability
    Particulars

    2002

    2003
    2004
    13724.0
    14286
    15546.00
    0

    Revenue
    Standerd deviation of
    Revenue

    933.02

    Mean Revenue

    14518.67

    Revenue Variability (CV)

    0.06

    Risk Analysis
    Variability in EBIT
    Particulars
    EBIT
    Standerd deviation of EBIT
    Mean EBIT
    Variability in EBIT (CV)

    2002

    2003

    2004

    -2,837 -1360.00 -408.00

    1223.92

    Particulars
    EBIT
    Standerd
    deviation
    of EBIT

    2002

    2003

    -2,837 1360.0
    0

    1223.9
    2

    -1535.00

    Mean EBIT

    1535.0
    0

    -0.80

    Variability
    in EBIT
    (CV)

    -0.80

    Altman Z-score Model

    Altman Z SCORE

    2002

    2003

    2004

    -0.2045

    -0.5499 -0.3114

    Distress Zone

    Distress Distress
    Zone
    Zone

    Z score for 2003 was


    -0.5499 and for 2003 it
    was -3114. As the value
    is less than 1.81 in all the
    years, we can consider
    the firm is in distress
    zone. According to the
    category firm has high
    bankruptcy cost in near
    future.

    Financial Risk
    Particulars

    2003

    2004

    DFL

    0.7435

    0.48

    Times Interest Earned

    -2.89

    -0.9230

    DUPONT ANALYSIS
    DUPONT ANALYSIS
    Year

    2003

    2004

    ROE= net income/ equity= (net income/net sales) *(net sales/total


    asset)*(total asset/equity)
    Net Profit AT/Revenues

    -0.0991

    -0.0261

    Revenues/Total Assets

    0.62

    0.72

    Total Assets/Stockhldrs. Equity

    -3.72

    -3.26

    ROE

    47.46%

    21.32%

    Problem Statement

    Alternatives
    Present Case

    Continuation of
    Pension Fund

    Termination of
    Pension Fund

    Liquidation

    Present Case Valuation:


    FCFF Method
    WACC Calculation

    Assumptions

    Tax rate
    Terminal growth rate

    0.3
    0.015

    Probability Of Distress

    0.5

    Cost Of Distress

    0.2

    Tax rate

    0.3

    Terminal growth rate

    0.015

    Probability Of Distress

    0.5

    Cost Of Distress

    0.2

    Risk-free rate

    3%

    Market Return
    Beta
    Cost of equity
    Cost of debt
    Tax Rate
    After tax cost of debt
    Value of equity
    Value of debt
    Weight of equity
    Weight of debt
    Additional risk premium

    8%
    1.6
    11.00%
    8.00%
    30%
    5.60%
    307
    23,252
    0.013
    0.9870
    6.0%

    WACC

    11.67%

    Base Case Valuation: FCFF


    Method
    Total pvcf

    28221.13962

    ADD: cash

    2,215

    Value of Firm

    30,436

    Cost of financial distress

    3043.613962

    Distress adjusted firm value

    27,393

    Less: Long Term Debt

    23252

    Value of equity

    4,141

    No of shares

    1000

    Value per share

    4.140525655

    Simulation & Sensitivity


    Present Case

    CV 0.827>0.50, so, VPS is more Sensitive

    VPS Most Sensitive to WACC

    Liquidation Valuation

    Amount

    Weighted
    Amount

    Distribution of liquidation value

    Present

    12,727

    6,364

    Liquidation value

    Best

    14,956

    2,991

    Total Value Of Debt

    Worst

    11,927

    3,578

    Average recovery amount

    12,933

    Transaction cost (15%)

    1,940

    Legal fees (12%)

    1,552

    Liquidation value

    9,441

    Liquidation value
    after paying debt

    9,441
    23,252

    (13,811)

    Now
    Presenting..
    Shahadat Hossain
    ID: 17-561

    Cash Flow Under Alternatives


    Continuation of pension fund
    Cash needed

    Cash needed

    Payment and termination of capital


    lease

    1412

    Payment of account payable

    238.4

    Contribution to pension fund

    4367

    liquidity financing
    Total

    Termination of pension plan

    500
    6517.4

    Cash financing

    Payment and terminattion of capital


    lease
    payment of long term debt
    Payment of account payable
    liquidity financing
    Total

    1412
    1481.2
    238.4
    500
    3631.6

    Cash in hand

    2215

    Cash financing

    Exit Financing

    2000

    Exit Financing

    2000

    Proceeds from sale of

    2626.68

    Proceeds from sale of

    Total cash financing

    6841.68

    Total cash financing

    Cash available

    324.28

    Cash available

    2626.68
    4,627
    995

    Valuation: Continuation of pension


    fund
    Assumptions
    WACC

    0.1066

    Tax rate

    0.3

    Terminal growth rate

    0.035

    Probability Of Distress

    0.2

    Cost Of Distress

    0.1

    Risk-free rate

    3%

    Market Return

    8%

    Beta

    1.3

    Cost of equity

    9.50%

    Cost of debt

    7.00%

    Tax Rate

    30%

    After tax cost of debt

    4.90%

    Value of equity

    4,985

    Value of debt

    3,333

    Weight of equity

    0.60

    Weight of debt

    0.40

    Additional risk premium

    3.0%

    WACC

    10.66%

    Risk-free rate

    3%

    Market Return

    8%

    Valuation: Continuation of
    pension fund
    Total PVCF

    35286.4

    Add: cash

    14,008

    Firm Value

    49,294

    Less:cost of financial distress

    985.882

    Distress adjusted firm value

    48,308

    Less: Long Term Debt

    3332.7

    Value of equity

    44,975

    no of shares out standing


    value per share

    10,000
    4.49755

    Simulation & Sensitivity:


    Continuation of pension fund

    CV 0.1218<0.50, so, VPS is


    less Sensitive

    VPS Most Sensitive to WACC

    Now Presenting..
    Muntasir Rahman
    Khan
    ID: 17-604

    Valuation: Termination of
    pension plan
    Assumptions
    WACC
    Tax rate
    Terminal growth rate
    Probability Of Distress
    Cost Of Distress

    0.1146
    0.3
    0.035
    0.2
    0.25

    Risk-free rate

    3%

    Market Return

    8%

    Beta

    1.5

    Cost of equity
    Cost of debt
    Tax Rate

    10.50%
    8.00%
    30%

    After tax cost of debt

    5.60%

    Value of equity

    4,985

    Value of debt

    8,165

    Weight of equity

    0.379

    Weight of debt
    Additional risk premium
    WACC

    0.6209
    4.0%
    11.46%

    Risk-free rate

    3%

    Market Return

    8%

    Valuation: Termination of
    pension plan
    Total pvcf

    32081.63

    Add: cash

    10,248

    Firm Value

    42,330

    Less:cost of financial distress

    2116.503

    Distress adjusted firm value

    40,214

    Less: Long Term Debt

    8165.42

    Value of equity

    32,048

    No. of share out standing


    Value per share

    10,000

    3.204814

    Simulation & Sensitivity


    Termination of pension plan

    CV 0.1541<0.50, so, VPS is less Sensitive

    VPS Most Sensitive to WACC

    Recommendation

    Justification

    Any Query ????

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