Executive Summary
Introduction
Flinder Valves and Controls Inc. located in Southern California, manufacturing specialty valves and heat exchangers. Outgrowth in 1980 of a small company, it has an excellent reputation for the engineering work it does. The excellent reputation of Flinder Valve’s engineering has led to the company doing prime contract work for the government on highly technical devices. 40% of the volume and 50% of the profits for Flinder Valves and Controls Inc. comes from the special application for the defense and aerospace industries. In 1996 Flinder Valves became public and Auden Company owned 20% of Flinder Valve’s common stock. Flinder Valve’s success has led to numerous companies wanting to merge or acquire the company.…show more content… RSE
Problem
RSE International Corporation wants to merge with Flinder Valve and Controls Inc. In 2008 Tom Eliot the chairman and chief executive officer of RSE and W. B. Bill Filnder, president of Flinder Valves and Controls Inc. are discussing this possible merger. There are two problems. One is about how much RSE should pay, i.e., about choosing the best method to value Flinder. The best method gives the value that is not only agreeable for and but also beneficial to the both companies. The other one is about how RSE should pay the value to Flinder. RSE could give Flinder shares of its stock or paying cash.
Course of actions
Forecasting the share price is based upon the past data from Flinder Valve and Controls Inc. and in relation to the market to determine the true value of the firm. Free cash flows must be calculated over 5 years to measure how much cash Flinder Valve and Controls Inc. would generate. Terminal value should be considered to find the value of the firm to take the final step towards calculating the share price. RSE should also analyze its own financial…show more content… The discounted cash flow calculates the current net present value of a project to see if the endeavor should be invested in. A Discounted cash flow analysis from 2007 to 2012 is the optimal analysis for Flinder. A discounted cash flow ending before 2012 may not accurately project the current cash flows. The cash flows projected for Flinder Valves and Controls Inc. are listed in Exhibit (A). Starting in 2008 the cash flow is small at $168 thousand however, from 2008-2012 the cash flows are projected to increase up to $164.380