[pri1234]

Burcolene is a large European-based petrochemical manufacturer, with a wide range of basic bulk chemicals in its product range and with strong markets in Europe and the Pacific region. In recent years, margins have fallen as a result of competition from China and, more importantly, Eastern European countries that have favourable access to the Russian petrochemical industry.

(a) Estimate the weighted average cost of capital and the current entity value for each business, taking into account the impact of the share option scheme and the pension fund deficit on the value of each company.
(8 marks)
(b) Write a briefing paper for management, advising them on:
(i) The validity of the free cash flow model, given the growth rate assumptions made by management for both firms
(ii) The implications of an acquisition such as this for Burcolene’s gearing and cost of capital

[Author]

Posts