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Smith and Wesson Do You Feel Lucky Today Case Solution
Abstract
S&W is clearing its way for development, and with the novel offering purpose of the organization being guns, the expansion of safeguard innovation offered by USR, S&W can improve its portfolio. The principle target market of the organization is the legislature and private offices which require guard offices, this objective market covers with that of USR and thus S&W can construct a solid association with its clients by offering it assorted number of items and administrations. On the off chance that we take a gander at the organization profile of USR, it uncovers that it is an inventive and innovative organization and can help expand the income for S&W. USR is additionally in consistence with the S&W goal of improving the item class and entering new markets and besides, it is likewise the goal USR.
Excel Calculations
EBITDA
Estimated Growth Rate
WACC
PV of Cashflows
Total PV
Cash outflow
NPV
Present Value of Future Cashflows
Price
Net Present Value
Current Closing Price
Current Number of Share
Current New Price afte deal
Expected number of Shares in 2010
Expected Price of Share in 2010
Expected Increase in Price
Questions Covered
1. Is USR a good fit for S&W? Does it accomplish S&W’s objectives of diversifying away from firearms?
2. Why did S&W use an earn out as part of the compensation for USR?
3. Assuming EBITDA is a close approximation for free cash flow, does the USR acquisition provide a positive net present value for S&W? Be ready to defend your methodology and assumptions used in your valuation estimate.
4. How important was the $100 million backlog information for your estimate of USR’s value to S&W?
5. How does the earn out impact your calculations?
6. Based on your NPV estimate of USR, what is the implied new stock price of S&W after acquiring USR? If you were Harry Callahan would you recommend taking a position in S&W? Would it be a long or short position?