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Hbr Sterling Case

In: Business and Management

Submitted By mollyd84
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Sterling Household Products Company
Case Note Adapted from Harvard Business School
Sterling Household Products Company (Sterling) is a comprehensive investment analysis case that requires students to consider a broad range of quantitative and qualitative issues in evaluating a significant strategic acquisition.

Suggested Questions and Analyses: 1) Determine the risk associated with the proposed acquisition of the germicidal, sanitation, and antiseptic products unit of Montagne Medical Instruments Company (Montagne). Discuss the inputs and assumptions that underlie your calculations. a) What is the cost of equity capital appropriate for evaluating the free cash flows associated with this investment? b) What is the correct capital structure and weighted average cost of capital to use in discounting the investment’s free cash flows? 2) Determine the value of the base case acquisition opportunity. Discuss the inputs and assumptions that underlie your calculations. b) What are the amounts and timing of the investment’s free cash flows from 2013 through 2022? b) What is the terminal value of the final 10 years of the acquisition, as of 2022? c) What is the net present value of this base investment?

3) Determine the value of the follow-up expansion investment opportunity. Discuss the inputs and assumptions that underlie your calculations. c) What are the amounts and timing of the expansion investment’s free cash flows from 2013 through 2022? b) What is the terminal value of the final 10 years of the follow-up acquisition, as of 2022? c)What is the net present value of this follow-up investment?

4) What is the combined present value of the base case and expansion investments? Is the acquisition value-additive to Sterling?

5) What are the strategic issues associated with the proposed acquisition? What

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