Cost of Capital III -- Case Soluation

Cost of Capital III -- Case Soluation - FINA537 Equity...

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1 FINA537 Equity Valuation Professor Laura Xiaolei Liu Cost of Capital -- Dixon Corp. Case Study Solution
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2 Dixon Corporation: The Collinsville Plant -- Background • In 1979, American Chemical Corporation announced a tender offer for Universal Paper Corporation • Universal’s management oppose the takeover, and sued in federal court on the ground that acquisition will reduce the competition in sodium chlorate market in Southeastern US. • American agreed to divest it’s sodium chlorate plant near Collinsville, Alabama and successfully acquired Universal. • In October 1979, American is seeking to sell Collinsville plant to Dixon Corp. for 12 millions
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3 Other Sodium Chlorate Producers • In late 1979, there were a doze domestic producers of sodium chlorate, market was dominated by large diversified chemical companies (such as Kerr-McGee), and there are also firms specialized in producing sodium chlorate (Brunswick and Southern).
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4 Other Sodium Chlorate Producers (Exhibit 1,5 year 1978, in millions except per share data) 0.48 0.48 0.48 0.48 Tax Rate 1.2 1.1 1.06 6.7 Equity Beta 0.21 0.15 0.17 0.39 (BD)/(BE+BD) 3 3.2 1,533 2,527 Total Cap. (BE+BD) 6.4 7.3 10.5 5.4 P/E 3.66 1.58 4.57 8.20 Earning per share 0.73 0.79 118 349 Net Income Southern Brunswick Kerr-McGee Americ an
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5 Dixon Corporate (Exhibit 7, in thousands except per share data) Income Statement .50 .40 .40 .30 .20 Dividends per share 3.66 2.94 2.23 1.86 1.13 Earnings per share 4,024 3,238 2,456 2,047 1,214 Net Income 3,818 2,932 2,285 1,878 1,125 Taxes 80 160 240 320 400 Interest 716 682 593 388 325 Research 4,436 3,291 2,824 2,308 1,952 SG&A 4,436 3,291 2,804 2,308 14,085 CGS 42,259 34,770 28,348 23,830 19,128 Sales 1979 1978 1977 1976 1975
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6 Dixon Corporate (Exhibit 7, in thousands except per share data) $40 $38 $27 $20 $9
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Cost of Capital III -- Case Soluation - FINA537 Equity...

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