Analytical assessment within case group: Quantitative work requiring participation of all group members, but only the group leader will submit the assignment via Canvas to the Instructor:
Calculate the Weighted Average Cost of Capital (WACC) for Burton, based upon the last year of actual data (non-forecast).
Consider these hints to construct Burton’s WACC:
Use industry average of unlevered beta (four industry competitors, Ex. 4) and assign to Burton;
Calculate levered beta for Burton and apply CAPM to get cost of levered equity and derive WACC for Burton.
(Note: all data needed presented in Burton case or calculated by group.)
Write a summary (200 – 300 words) of your assessment of the value of this WACC in assessing the investment possibilities of Electro-Engineering and the Thermowell machines. (Note: I stop reading and grading after the 300th)
What are the risks of financial distress for Burton? Please be specific under the following scenarios:
Scenario 1 – Burton makes acquisition of Thermowell machines, though your group explains how Burton finances the purchase.
Scenario 2 – Burton makes acquisition of Electro-Engineering and the Thermowell machines, based upon your method of financing.
Write a summary (200 – 250 words) that support your positions for both these scenarios (maximum of 250 words for two scenarios). (Note: I stop reading and grading after the 250th)
