Seminar in financegeneral motors

NATIONAL ECONOMICS UNIVERSITY ADVANCED EDUCATION PROGRAM SEMINAR IN FINANCE GENERAL MOTORS LECTURER: PhD LE DUC HOANG CLASS: ADVANCED FINANCE 60A GROUP TRAN VIET KHANH -11172338 HOANG THUY KIEU TRANG - 1185063 NGUYEN THI MINH NGOC - 11183687 LE DIEM QUYNH - 11184234 VU QUYNH MAI - 11183277 NGUYEN THI NGOC MAI - 11183236 NGUYEN MINH TRANG - 11185121 Hanoi, 26/10/21 Table of Contents Part I: General Motors Overview 1.1 History of GM 1.2 Vision Statement Mission Statement Part II:Competitors Analysis 2.1.Automotive industry in the United States 2.2 Ford Company 10 2.3 SWOT Analysis 10 2.4 Conclusion .19 Part IV: Financial ratiosanalysis 20 4.1 Short-term solvency, or liquidity ratios 20 4.1.1 Current Ratio 20 4.2 Long-term solvency, or financial leverage, ratios 21 4.2.1 Debt- to equity ratio 21 4.2.2 Asset turnover ratios 22 4.3 Asset management or turnover, ratios 23 4.3.1 Inventory turnover .23 4.4 Profitability ratios 24 4.4.1 Profit margin 24 4.4.2 Return on Asset 25 4.4.3 Return on equity 26 4.5 Market value ratios 28 4.5.1 P/E ratio .28 4.5.2 EV/EBITDA 29 4.5.3 PEG ratio 30 Part 5: Stock price estimation and Firm value .31 5.1 Estimating stock price under DCF method: .32 5.1.1 Introduction to DCF method: 32 5.1.2 Assumptions for future cash flows: 32 5.1.3 Cost of Capital estimation 34 5.1.4 Cash flows estimation: .35 5.1.4 Enterprise value estimation: .38 5.2 Estimating stock price under Comparable method 39 This is a preview DoPart you want full access? Go Premium and unlock all 60 pages VI:Shares buyback decision 41 6.1 The impacts on a firm’s financial statements 41 6.2 Repurchase assumption and its impactto onall GM’s value 43 Access documents 6.3 Tax shield 44 6.4 Buying methods .45 Get Unlimited Downloads 6.5.Final decision 45 Improve your grades Part VII: Merge and Acquisition 46 7.1 XCEL ENERGY’S INTRODUCTION 46 7.2 XCEL ENERGY'S POTENTIAL .47 7.3 XCEL ENERGY’S SWOT ANALYSIS .47 Upload 7.4 XCEL ENERGY’S VALUATION BEFORE M&A 50 7.5 M&A 53 Share your documents to unlock Part I: General Motors Overview Free Trial 1.1 History of GM Get 30 days of free Premium General Motors Company is an American automotive multinational corporation headquartered in Detroit Michigan, United States The company was founded in 1908 by William Crapo Durant who had started out as a manufacturer of horsedrawn vehicles Their design, manufacture, market vehicles and vehicle parts Already Premium? Log in were the leader in total worldwide vehicle sales for 77 consecutive years, from 1931 to 2007, staying on top longer than any other auto manufacturing production company  The 1949 Buick Roadmaster, the Chevrolet Corvette and BelAir and the 1959 Cadillac El Dorado helped set the tone for automotive styling through the Fabulous Fifties, the golden age of car design  In 1971, GM pioneered the use of engines that could run on low-lead or unleaded petrol Two years later it was the first to offer a car with an air bag and in 1974, it introduced the catalytic converter to reduce emissions  The manufacturer helped develop the guidance and navigation system for the first Moon landing aboard Apollo 11 and designed and manufactured the Lunar Roving Vehicle for Apollo 15 – the first vehicle driven on the Moon  In the 1980s, GM opened a new complex in Zaragoza, Spain, which began manufacturing the Opel Corsa The firm also added Saab and Hummer to its stable  In 1995, annual vehicle sales outside North America exceeded 3m units for the first time, while 5m vehicles were sold in the US and GM embarked on its first joint venture in China Buick became China's most popular automotive brand Unfortunately, GM went bankrupton June 1st, 2009, and officially returned to the market on July 10th, 2009 Today, GM produces vehicles in 30 countries, under 10 different brands, including Chevrolet, Buick, GMC, and Cadillac It remains one of the world’s largest automakers in regard to vehicle unit sales and depends on a wide array of suppliers in its manufacturing process As of 2021, General Motors is ranked number 22 on the Fortune 500 rankings of the largest United States corporations by total revenue 1.2 Vision Statement Mission Statement Mission statement:“To earn customers for life by building brands that inspire passion and loyalty through not only breakthrough technologies but also by serving and improving the communities in which we live and work around the world.” This mission statement shows a holistic approach to addressing external factors that influence the business Thus, the following are the components or features of General Motors’ mission statement     Earn customers for life Building brands that inspire passion and loyalty Breakthrough technologies Serving and improving communities in which we live and work around the world The first component of the mission statement requires that General Motors must work toward gaining loyal customers, based on factors like product quality, brand imageand others The second feature of General Motors’ corporate mission statement gives a general direction on how to earn customers for life For instance, the company must inspire passion and loyalty through its brands Furthermore, technological breakthroughs are a way of fulfilling such inspiration, as shown in the third component of General Motors’ mission statement However, the corporate mission also points to the importance of serving and improving communities This fourth component is associated with organizational activities that address the interests of stakeholders of GM’s automotive business Vision Statement:“to become the world’s most valued automotive company.” This vision statement points to the leadership of the business, while considering the conditions of the global market and the various factors at play Thus, the following are the main components of General Motors’ vision statement:  World (global market)  Most valued company General Motors Company specifies its operations at the international level The first component of the vision statement guides the company’s strategies toward the top position in the global automotive industry Keeping such position is challenging because of tough competition with other large automobile manufacturers The second feature of General Motors’ corporate vision statement shows that value is the basis of leadership that the company aims to achieve The definition of such value is not specified in the corporate vision, posing a challenge to decision makers in using different variables for determining value For example, financial performance, perceived product value, and other factors are possible determinants of the value of General Motors 1.3 General Motors ‘s managemnt Mary Barra Chief Executive Officer of General Motors As CEO, she always urges the company to hire employees with diverse skills and backgrounds Recently, GM was ranked #1 out of 200 companies worldwide for its efforts on gender equality During her first year as CEO, Ms Barra led GM by reviewing company culture and focusing on safety after multiple product recalls, especially after 124 people die from a Faulty ignition switch To deal with it, Ms Barra fired 15 employees, This is a preview Do you want full access? Go Premium and unlock all 60 pages disciplined five others and set up a compensation fund for the families of the victims.Since then, Barra has pushed GM to innovate, and one of her top priorities is developing self-driving cars, which she says will be launched by GM next year Access allaffordable documents GM also competes fiercely with Teslato with electric vehicles At General Motors, everyone works by a set of seven principles, one of which is Getempowers Unlimited Innovate Now Barra always to Downloads departments to be innovative and creative, while also understanding macro trends GM under Barra has always sought to use technology toImprove provide value customers, to make their lives safer, yourtogrades better, and easier, and has always prioritized the development of new business ideas which is typically the car brand Maven.Barra and the leadership in GM always push subordinates to find new solutions through exchange and networking programs Barra believes: "Opening minds and eager to learn new knowledge will help GM create a better future." Mark Reuss Upload President of General Motors Share your documents to unlock Mark Reuss is president of General Motors Company In this role, he leads the company’s regional operations, including North America, South America, China, and General Motors International Free Trial From 2013-2018, Reuss was executive vice president, Global Product 30 days of free Premium Development, Purchasing andGet Supply Chain, and led program management of GM cars, trucks, and crossovers worldwide In this role, he oversaw a major transformation of the product development organization in 2018 to increase focus and development of electrification and autonomous vehicles Before that, starting in 2009, Reuss was president of General Motors North America, responsible for GM’s performance, manufacturing, portfolio, and Already Premium? Logdealer in network Under his watch, GM’s North America region produced consistent profits and improved margins during a product renaissance featuring a slate of award-winning vehicles In 2013, he oversaw the purchase of the historic Durant-Dort Factory One, the birthplace of General Motors After extensive renovations, Factory One reopened in 2017 as a modern, world-class facility that hosts events and holds the iconic Kettering University automotive archives Paul Jacobson Executive vice president and chief financial officer Jacobson is an important hire for GM as it enters into new ventures and continues to restructure its business operations toward all-electric vehicles He’ll also be tasked with assisting the automaker in persuading Wall Street that it’s undervalued “Paul is a great addition to the GM senior leadership team and is dedicated to leading the company for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders,” said Barra “We share a commitment to teamwork and inclusion as we work toward our vision of a future with zero crashes, zero emissions and zero congestion while delivering a best-in-class customer experience, operational and financial excellence, and disciplined capital allocation.” “GM’s vision is compelling because it embraces the needs of society, customers and investors, and they are executing an historic technology shift to electrification from a position of strength,” Jacobson said “I look forward to joining the team and helping them accelerate their plan.” Stephen K Carlisle Executive Vice President and President of North America Stephen K Carlisle was appointed Executive Vice President and President, North America, effective September 2020 Prior to this role, Carlisle served as Senior Vice President and President, Cadillac, a position he held since April 2018 Carlisle is an active business leader “ Steve will help us scale the considerable transformation progress we have been making, while at the same time preserving the sufficient autonomy necessary to maintain four distinct vehicle brands,” said GM Chairman and CEO Mary Barra Carlisle most recently served as vice president of global product planning and program management and previously held positions as vice president of U.S sales operations; president and managing director of GM Southeast Asia Operations; and other leadership positions in Singapore and China Carlisle said “I look forward to working with our employees, dealers and other key stakeholders to continue to build an organization that puts the customer at the center of everything we do.” In April 2015, GM Canada announced it that has been awarded a new automotive R&D and innovation mandate at its Oshawa Engineering Centre, focused on fast emerging “connected car” and the development of new urban mobility solutions The company is hiring 100 new software engineers and engaging a growing ecosystem of select Canadian universities, accelerators, and suppliers in its mandate Carlisle announced that GM Canada will support the University of Waterloo’s Engineering Faculty by providing $1 million to fund a Research Chair in advanced materials while also sponsoring engineering student Capstone design projects involving software development, which is key to GM Canada’s work on “the connected car.” Part II:Competitors Analysis 2.1.Automotive industry in the United States The automotive industry in the United States experienced a sharp drop in demand amid the outbreak of COVID-19 This is a preview Do you want full access? Go Premium and unlock all 60 pages Access to all documents Get Unlimited Downloads Improve your grades Upload Share your documents to unlock Free Trial Get 30 days of free Premium In March 2020, U.S vehicle sales were down 38 percent year-on-year When stay-at-home orders were released, light vehicle sales bounced back to reach some 14.5 million units Light vehicles accounted for about 97 percent of motor vehicles that were sold in Already Premium? Log in the United States in 2020 Despite the pandemic, U.S light truck sales exceeded 11 million units in 2020 Meanwhile, the number of cars sold in the U.S went down from a staggering 11.4 million units in 1973 to a little over 3.4 million units in 2020, mainly because U.S consumer demand shifted towards larger vehicles over the course of the past decades 2.2 Ford Company Ford Motor Company (commonly known as Ford) is an American multinational automobile manufacturer headquartered in Dearborn, Michigan, United States It was founded by Henry Ford and incorporated on June 16, 1903 The company sells automobiles and commercial vehicles under the Ford brand, and luxury cars under its Lincoln luxury brand Ford is the second-largest U.S.-based automaker (behind General Motors) and the fifth largest in the world (behind Toyota, Volkswagen, Hyundai, and General Motors) based on 2015 vehicle production At the end of 2010, Ford was the fifth largest automaker in Europe 2.3 SWOT Analysis STRENGTHS GM Market Leader of Automotive Segment General Motors is one of the FORD Automotive Segment Ford is currently the second-largest automaker in the U.S (behind GM) This is a preview Do you want full access? Go Premium and unlock all 60 pages Access to all documents Get Unlimited Downloads Improve your grades We suggest GM to buy back shares And it is better if GM using excess cash for 6.32% of share buyback because investors hope for a stable future of buyback and dividend Additionally, using excess cash can remain a stable capital structure with Share your documents to unlock minimum WACC(5.269%) Therefore, using excess cash is the optimal decision Upload  Assume GM issue debt to buyback 10% of shares If using 10% share buyback with debt financing, GM has higher tax shields and higher EPS Assuming using debt for 10% share repurchase, Rd = 4.082%; therefore, EPS increases Additionally, WACC at 10% share repurchase(5.306%) is lower than current WACC(5.366%), which increases in value of the firm Get 30 days of free Premium Moreover, GM is undervalued, by using share repurchase can bring the firm more closely to its intrinsic value.Hence, the new financial situation when GM issuing debt to buy back 10% share is better than the current one Free Trial Part VII: Merge and Acquisition Already Premium? Log in 7.1 XCEL ENERGY’S INTRODUCTION Xcel Energy is the corporation that is specified in gas and electricity systems with operations in Western and Midwestern states The company offers a variety of energy-related services including generation, transmission, and distribution of electricity and natural gas throughout the United States Type: Public Industry: Electricity, Steam and Natural Gas Utility Founded: 1909 Headquarter: Minneapolis, Minnesota, U.S Key people: This is a preview Do you want full access? Go Premium and unlock all 60 pages  Ben Fowke (Chairman, President, & CEO)  Robert C Frenzel (Executive VP & CFO)  Jeffrey S Savage (Senior VP & Controller Access to all documents Get Unlimited Downloads 7.2 XCEL ENERGY'S POTENTIAL At the moment, GM motorsImprove aims to make of its cars and trucks emissionsyourmost grades free by 2035, as part of a wider campaign by the American auto giant to go carbon neutral The first important factor of Xcel Energy is its reputation and quality Xcel Energy has a worldwide network and customer preference throughout it’s network, which makes the company available to many important business areas Besides, its past experience is considered to beShare an indispensable part because it is the base of GM’s your documents to unlock decision.To be specific, Xcel Energy also has a 12-years’ experience in its field, while also in cooperation with major companies in the automobile industry such as Ford and Tesla In terms of plans for upcoming years , Xcel also has a promising vision First, Xcel Company provides a Future of clean, affordable transportation in the eight states it serves It aims to provide 100% carbon-free electricity by 2050, 1.5 million electric vehicles (EV) in its service areas by 2030 and invest in electric vehicle charging infrastructure and accelerating electric Get 30 days of free Premium transportation, Furthermore, EV vision is supported by dozens of leading automakers, environmental organizations, EV technology companies and more (Ford Motor Company, Microsoft, General Motors, ) It will be a reliable supplier for EV of GM so it means Xcel Energy is potential and beneficial for GM in general Upload Free Trial Already Premium? Log in 7.3 XCEL ENERGY’S SWOT ANALYSIS STRENGTHS +Strong distribution network +Strong online presence +Superb performance in new markets +High level of customer satisfaction +Reliable suppliers WEAKNESSES +Financial planning +Insufficient budget for the marketing and promotion activities +Less expenditure on the research and development activities +Poor project management practices +Shortage of skilled labor This is a preview Do you want full access? Go Premium and unlock all 60 pages OPPORTUNITIES THREATS The advanced technological +Lawsuits in various markets given Access to all documents integration can +The rise in inflation +Decrease costs +Intense competition Get Unlimited Downloads +Improve efficiency +Quick introduction of innovative products Improve your grades Strengths: Upload Strong distribution network has been proven over the years, Xcel Energy has built a reliable distribution network that can reach the majority of its potential market Share your documents to unlock Besides, the strong online presence on different social networking sites and efficient social media management can enhance the effect of positive e-WOM and develop strong relationships with customers Xcel Energy has built expertise at entering new markets and it can be called as superb performance in new markets The expansion has helped the organization to build new revenue streams and diversify the economic cycle risk in the markets it operates in Xcel Energy has a strong dealer community, as it has built a culture among distributors and dealers 30 days of free Premium where the dealers not only Get promote the company's products but also invest in training the sales team to explain to the customer how he/she can extract the maximum benefits out of the products The high level of customer satisfaction is one of the most essential factors The company with its dedicated customer relationship management department has been able to achieve a high level of customer satisfaction among present customers and good Already Premium? Log inbrand equity among the potential customers.It also reliable suppliers and it has a strong base of reliable suppliers of raw material thus enabling the company to overcome any supply chain bottlenecks In addition, successful track record of developing new products or product innovation Free Trial Opportunity: The development of new technologies to assist the product/service production and delivery process can be exploited to embed the innovation in business operations The advanced technological integration can decrease costs, improve efficiency and result in the quick introduction of innovative products The subsidies provided by the government and other policies to make the business environment more friendly is a positive external environmental factor for Xcel Energy This is a preview Do you want full access? Go Premium and unlock all 60 pages Connection between its Strength and Opportunity: +The geographic presence of Xcel Energy in different regions can help the to all market documents organisation to get into theAccess international and target the geographically dispersed customer base +Strong online presence onGet different social networking sites of Xcel Energy can Unlimited Downloads allow the organisation to exploit opportunities offered by the growing e-commerce trend Improve integrated your grades +The well-developed and efficiently IT infrastructure of Xcel Energy allows it to take advantage of emerging innovative technologies Weaknesses: Upload The workforce at Xcel Energy Inc is concentrated with mostly local workers, and low amounts of workers from other racial backgrounds Lack of diversification Share your documents unlock makes it difficult for employees from different racial to backgrounds to adjust at the workplace, leading to loss of talent Even though Xcel Energy Inc is spending more than the average research and development expenditure within the industry, it is spending way less than a few players within the industry that have had a significant advantage as a result of their innovative products Xcel Energy’s current structure and culture have resulted in the failure of various mergers aimed at vertical integration Next, there is a lack of proper financial planning at Xcel Get 30leading days oftofree Premium Energy Inc regarding cash flows, certain circumstances where there isn’t enough cash flow as required leading to unnecessary unplanned borrowing Free Trial Threats: New technological developments by a few competitors within the industry pose a threat to Xcel Energy Inc as customers attracted to this new technology can be lost Already Premium? Log in to competitors, decreasing Xcel Energy overall market share It also has to take regulations into account because regulations on international trade keep changing, and this requires compliance by companies if they are to operate globally, while Political uncertainties in the country prove to be a barrier in business, hindering performance at times and making the business incur unnecessary costs The fluctuating interest rates in the country not provide a stable financial and economic environment 7.4 XCEL ENERGY’S VALUATION BEFORE M&A Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future This is a preview Do you want full access? Go Premium and unlock all 60 pages To value Xcel Energy, we will use the DCF method, since the DCF method is the most reliable and correct method of firm valuation Also it’s extremely detailed, which includes all major assumptions about the business It determines the Accesswhile to allit documents “intrinsic” value of a business does not require any comparable companies It can be performed in Xcel Energy Inc In addition, the DCF method includes all future expectations a business, which is suitable for analyzing Get about Unlimited Downloads mergers and acquisition and allows for sensitivity analysis Improve your grades Upload Share your documents to unlock Free Trial Get 30 days of free Premium We will analyse income statements from 2016 to 2020 Several assumptions will be made for the sake of calculation during the year from 2021 to 2025 Unit which will be used in this income statement would be ininmillions dollars Already Premium? Log Before the calculations, the following assumptions will take place, which are: Firstly, the US long-term GDP growth rate of 2025 is estimated as 1.61% - the benchmark to compute the predicted growth rate of XEL sales from 2021 to 2025 We believe that the company will be merged in 2021 and in 2022 will be a period of strong growth and then the company will enter a stable stage Therefore, the growth rate value will gradually increase from 2021 to 2025 That is why we take the average of years of historical data (equal 0.91%) Secondly, the expected gross profit margin 2021 to 2025 also is calculated based on the projected growth rate After that, we find out the value of cost of sale in the next years.Then, we continue to assume Depreciation & Amortization, is fixed at average Depreciation from 2016-2020 The EBIT is projected as the table below: This is a preview Do you want full access? Go Premium and unlock all 60 pages Access to all documents Get Unlimited Downloads Improve your grades In addition, our group estimate the tax rate (2021-2023) based on the data from S&P Global Market (2021 for 21%; 2022 and 2023 for both 28%) and increase in tax rate (2024&2025), we assume that the value will be fixed at the average tax rate from 2016-2020 Upload Share your documents to unlock Finally, the percentage of 2021 Capex to Revenue, we took 20.55% as the average value of the power industry is an input for further estimation for later years Here is the table of WACC assumptions We calculate the WACC as 5.12% based on the total market value of the company's financing, the cost of equity and debt and the tax rate The cost of equity, 8.91%, is estimated Risk free rate of return + Adjusted beta * (Market of return -Risk free rate of return), with Adjusted beta= 30 days of free Premium Raw beta*⅔+ 1*⅓ The afterGet tax-cost of debt, 3.33%, is also estimated as Pre-tax cost of debt * (1- Marginal tax rate) Free Trial WACC Calculation Risk free rate of return (10-yr T-bond) 2.5% Country risk premium 0.00% Return of market 13.75% Already Premium? Log in Adjusted beta 0.57 Effective tax rate 21% Cost of equity 8.91% Cost of debt 4.21% After-tax cost of debt 3.33% Wd 40% This is a preview Do you want full access? Go Premium and unlock all 60 pages 60% We WACC Access to all documents 5.12% The table below represents the DCF method The figures for the Invested capital Get Unlimited Downloads (beginning balance) are following the order from 2021 to 2025 shown in the table, which are calculated based on Net Working Capital, Net Fixed Assets and Net Goodwill and Intangible Improve Assets We usegrades the projected datas of Capital your Expenditure, Depreciation and Change in Working capital to compute the reinvestments Then we take the reinvestment datas calculated above to compute the reinvestment rate, and have the results for the years 2021 to 2025, respectively Next, this is our estimate for FCFF We calculate FCFF by using the formula: Upload FCFF = NOPAT + Depreciation&Amortization – CAPEX – Δ WC Share your documents to unlock And then we can compute the Terminal value of Xcel Energy Inc in 2025 using the last formula in this part, which equals $ 225,942.736 million dollars Calculating the Present Value (PV) is actually quite simple as we have the results of each variable above, so the figures for the PV which are shown in the table are determined Finally we have the Enterprise value (or Target value) that is discounted back from 2025 to 2021 is $36,048.15 million dollar Free Trial Get 30 days of free Premium Already Premium? Log in This is a preview Do you want full access? Go Premium and unlock all 60 pages Access to all documents Get Unlimited Downloads Improve your grades Upload Share your documents to unlock Free Trial Get 30 days of free Premium 7.5 M&A Already Premium? Log in (All number in millions, except the price per share) Assumptions Purchase price per share $ 66.1 Debt value/ equity purchased value 70% New equity issuance/ Equity purchased value 30% Total XCEL shares outstanding 13.83 Purchase equity price $ 538.44 Debt raising $ 9,681 New equity issuance $ 4,149 This is a preview Do you want full access? Go Premium and unlock all 60 pages Before we are able to use the Damodaran’s model, certain assumptions will be made to calculate debt-to-equity ratio of Xcel Energy, since it’s one of key elements Access to all documents First, we assume that the ratio between debt value and equity purchased value , also the ratio between new equity issuance andDownloads equity purchased value is 70% and Get Unlimited 30%, respectively Also, for the price per share we assume that it’s value is $66.1 since it’s the latest value of Xcel Energy for the sake of estimation Also, the Improve gradesformula: purchased equity price is calculated by your the following Purchased Equity Price = Total Debt – Enterprise Value With the assumptions, we can calculate debt raising and new equity issuance Upload Next, the Stockholder’s Equity when both companies merged will be calculated by using the following formula: Share your documents to unlock SE (merged) = SE of the acquiring company + New Equity issuance Therefore, we assume there will be insignificant changes which will affect the stockholder’s equity of GM in mentioned years, which is $13,830 millions dollars By doing so, Stockholder’s Equity while merged is calculated Moving Get 30 days of free Premium on to the calculation of debt-to-equity ratio of Xcel Energy, it will be estimated using this formula: Free Trial Debt-to-Equity = We will now add numbers and categories which will be used to compute values, Already Premium? Log in which will be presented in the following table Inputs Current risk-free rate 0.025 Risk Premium 0.055 0.055 We will assume that there are zero excess returns beyond our high growth phase and stable growth rate will equal risk-free rate GM XCEL Energy 1.2 0.57 After merger 0.734520633 Beta In terminal year 0.73551189 This is a preview Do you want full access? Go Premium and unlock all 60 pages Pre-tax cost of debt 0.026399941 Access to0.0353 all documents 0.0191 0.3 Get Unlimited Downloads Tax rate 0.21 Weight of Debt 0.6467 0.21 Improve your grades0.374259001 Revenues 0.0421 Upload $122,485.0 $13,092.00 $135,577.00 Share your documents to unlock $9,193.00 $7,507.00 $8,433.27 EBIT Free Trial Pre-tax return on capital 0.0584 0.1328 0.091925654 Get 30 days of free Premium -0.0827 0.214 0.050997063 Reinvestment Rate Already Premium? Log in Length of growth period 3 In this table, the following formulas are used to compute in-details categories : Beta after merger = Pre-tax cost of Debt after merger = This is a preview Do you want full access? Go Premium and unlock all 60 pages Access to all documents Weight of debt after merger = Get Unlimited Downloads Weight of Debt of GM * + Weight of Debt of XCel * Improve your grades Revenues after merger = Revenue of GM + Revenue of Xcel EBIT after merger = EBIT of GM * + Upload EBIT of Xcel * Share your documents to unlock Pre-tax return on capital after merger = Pre-tax return on capital of GM * + Free Trial Pre-tax return on capital of Xcel * Reinvestment Rate after mergerGet = 30 days of free Premium Reinvestment Rate of GM * + Reinvestment Rate of Xcel * Already Premium? Log in Now, since required elements have been calculated, we can proceed the Damodaran’s synergy method Computed Values GM Cost of Equity 0.091 After-tax Cost of Debt 0.0333 Xcel Energy Value of Firm with Synergy 0.05635 0.065398635 0.06545315 0.027887 0.018479959 0.01847996 In terminal year (Weights based on terminal value) This is a preview Do you want full access? Go Premium and unlock all 60 pages 0.0536854 Cost of capital 0.05515171 0.047838898 Access to all documents 0.04787301 Get Unlimited Downloads After-tax return on capital 0.046136 0.104912 0.064347958 -0.0827 0.214 0.050997063 Improve your grades Reinvestment Rate 0.02245117 Upload 0.0038154 Expected growth rate 0.003281557 Share your documents to unlock Value of firm $21,107.03 PV of FCFF in high growth $13,135.18 Free Trial $15,417.45 Terminal value Get 30 days of free Premium $ $ $ 137,079.13 117,811.08 127,642.53 Value of firm today 138,282.9Premium? 113,421.4 Log 126,363.50 Already in $ $ $ In this section, the following formulas will be used: Cost of Equity = Current Risk-free Rate + Beta * Risk Premium After-tax cost of debt = Pre-tax cost of debt * (1- Tax Rate) Cost of Capital after merger = Cost of Equity * (1- Weight of Debt) + After-tax cost of debt * Weight of debt After-tax Return on capital = Pre-tax return on capital * (1 –Tax Rate) Expected Growth Rate = Return on capital* Reinvestment Rate This is a preview DoPVyou want full access? Go Premium and unlock all 60 pages of FCFF in high growth= Access to all documents Terminal Value = Get Unlimited Downloads Value of firm today = Improve your grades Cost of Equity in Terminal Years (Weight based on terminal value) = Current Risk-Free Rate + Beta*Risk Premium Upload Cost of Capital in Terminal Years (Weight based on terminal value) = your documents Cost of Equity*(1- WeightShare of Debt) +After-tax Costto of unlock Debt*Weight of Debt Value of Synergy Value of Independent Firms Value of combined Firms Value of Synergy 251704.4118 126363.5023 -125340.9095 Free Trial Get 30 days of free Premium For the last steps, we will compute Value of Independent Firms, which equal: Value of GM today + Value of XCEL today Finally, the Value of Synergy = Already Premium? Log in Value of combined Firms- Value of Independent Firms The result gives us a negative number, which is -125340.9095 Therefore, we can conclude the acquisition of GM to XCEL Energy may cause unexpected issues, which may due to vastly difference in leader ship styles and others segments and GM should not M&A with XCEL Energy at this moment This is a preview Do you want full access? Go Premium and unlock all 60 pages References https://www.theguardian.com/business/2009/apr/30/general-motors-gm-history Access to all documents https://www.kbzk.com/cnn/2018/10/11/what-gms-mary-barra-learned-early-onspeak-up-and-stop-saying-sorry/ Get Unlimited Downloads https://www.gm.com/our-company/leadership/corporate-officers.html Improve your grades http://panmore.com/general-motors-vision-statement-mission-statementanalysis#:~:text=General%20Motors'%20corporate%20mission%20is,a %20holistic%20approach%20to%20addressing https://www.britannica.com/topic/General-Motors-Corporation Upload https://www.gm.com/electric-vehicles.html Share your documents to unlock https://media.ford.com/content/fordmedia/fna/us/en/news/2021/05/19/the-fordelectric-vehicle-strategy what-you-need-to-know.html https://www.investopedia.com/articles/markets/123015/ford-vs-chevy-comparingbusiness-models-and-strategies-f-gm.asp Free Trial https://www.forbes.com/sites/greatspeculations/2019/10/23/a-look-at-ford-vs-gm/? sh=19e243d6146f Get 30 days of free Premium https://www.statista.com/statistics/204473/best-selling-trucks-in-the-united-statesfrom-january-to-october-2011/?fbclid=IwAR3bYOCGwHPVpp1CaiDHEZvlRladZKD2aku3C8BIjAisHCp8OqtszAF5qA https://www.statista.com/statistics/204342/comparison-of-us-vehicle-production/? 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