Valuation
Measuring and Managing the Value of Companies
5th Edition
Chapter 8 Solutions
Analyzing Performance and Competitive Position
Version 1.0
April 1, 2010
Chapter 8
Questions 1–3
JetCo Gulf Question 1
Question 2
its cost of capital.
Competitive benchmarking Question 3
Key ratios To measure value creation post-acquisition, ROIC must be measured with goodwill.
Gulf Gulf With $500 million in new goodwill, ROIC drops from 12.5 percent to 6.8 percent.
(without (with Since this is below the company’s 8 percent cost of capital, the acquisition is
Percent JetCo goodwill) goodwill) currently destroying value. From a competitive perspective, Gulf is the beBer
Key data
Tax rate 25%
Chapter 8 Procter & Gamble
Question 5 Annual report, 2009
2008 2009 Procter & Gamble 2009
Procter & Gamble 2008
Net sales increased 9% in 2008 to $81.7 billion behind 4% unit volume
growth, a favorable 5% foreign exchange impact and a positive 1%
pricing impact. Favorable foreign exchange resulted primarily from the
strengthening of European and other currencies relative to the U.S.
dollar. Price increases were taken across a number of our businesses
primarily to oGset higher commodity costs. Mix had a negative 1%
impact on net sales primarily due to disproportionate growth in
developing regions, where selling prices are below the Company
average.
Source: www.pg.com/en_US/downloads/investors/annual_reports/2009/PG_2009_AnnualReport.pdf.
Chapter 8
Question 4
Gulf Aviation Year 1 Year 2 Year 3
DefenseCo
Organic growth
Chapter 8
Question 6
Since EBITA is less than EBITDA (EBITA = EBITDA – Depreciation), EBITA to interest will be less than EBITDA to interest.
If near-term bankruptcy is an issue, EBITDA can be used to meet interest obligations, and maintenance capital will