This case was published on March 01, and revised in December Case was written by Professor John P. The Adjusted Present Value approach to valuation is especially useful when there the capital structure is uncertain and when debt to equity ratio is changing significantly.
These cases are primarily corporate finance and American checmical corporation case studies but also has some elements of strategy and decision making with uncertainty. The Collinsville Plant case studies deal with the acquisition decision from the perspective of Dixon Corporation.
Please fill in the form below to start your tutoring request. Other questions that can be asked on this case study include: Is the Collinsville Plant attractive strategically for Dixon Corporation? Corporate finance students are expected to know how to work out the free cash flow from the financial statements.
Please remember that HBS cases are developed solely as the basis for class discussion. These cases and related discussions are not intended to serve as examples or endorsements, sources of primary data, or illustrations of effective or ineffective management. What discount rate would be appropriate to value the cash flows?
Students are able to understand what betas are, the different types of betas asset beta vs. The inputs for the WACC formula are not given on a platter in these cases. It helps students understand and appreciate the fact that the capital structure contributes to risk. Both the American Chemical Corp.
Seeking out information on or making assumptions as needed to get the depreciation, working capital and CAPEX numbers are part of the learning experience in these two cases.
Among the potential buyers was a specialty chemicals manufacturing company, Dixon Corporation. The costs associated with this technology will be different and so the cash flows and therefore the present value of these cash flows are going to be different if the technology is successful.
Details on the types of loan and its repayment plan are provided. The Collinsville Plant was written by Prof. Risk and Beta in Corporate Finance This case study helps students understand that the discount rate incorporates risk and that different types of industries and cash flows bring different levels of risk.
Un-levering and Re-levering betas The case studies provide students an opportunity to understand the difference between financial risk and operating risk. Therefore students can use this as their starting point for valuation professors can give students practice in forecasting financial statements by requiring them to do a 10 year pro forma financial statement forecast and use the 10 year cash flow for valuation.
Do you think the financing plan makes sense for the project for Dixon Corporation?
Because of the changing debt to equity ratios, the case is ideally suited to apply the Adjusted Present Value approach to valuation.currently operated by American Chemical Corporation (American), who has offered to sell the plant’s net assets for $12 million.
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Dixon, an American specialty chemical producer, wants to buy Collinsville plant from American Chemical Corporation, another typical chemical company in Dixon wants to diversify its product line by acquiring the aforesaid plant, which produces sodiumchlorate to supply to paper producers in South-eastern part of the US.5/5(6).Download