Smith and Wesson Do You Feel Lucky Today Case Solution

Case Solution

S&W is clearing its way for augmentation, and with the uncommon offering motivation behind the association being weapons, the extension of resistance development offered by USR, S&W can enhance its portfolio. The guideline target business area of the association is the lawmaking body and private workplaces which oblige resistance workplaces, this target business covers with that of USR and therefore S&W can amass an in number relationship with its customers by offering it different number of things and organizations. If we look at the association profile of USR, it reveals that it is an innovative and creative association and can help construct the salary for S&W. USR is in like manner in consistence with the S&W objective of updating the thing order and penetrating new markets and besides, it is also the objective 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?