# A New Financial Policy at Swedish Match Harvard Case Solution & Analysis

## A New Financial Policy at Swedish Match Case Solution

### Q4) At each debt level, estimate the benefits of debt.

It is calculated in the Excel spreadsheet with the name of spreadsheet Question 4.

### Q5. Recapitalization of sek 4 billion, what will Swedish Match’s market value

• Right after it announces the leveraged recap?

The value of the Swedish Match will increase it’s market value with the tax target. The CFO says that after the purchase , the ranking of the company will improve to BBB. It is said that the profits of financial  pain don’t  exists which brings about no financial  trouble cost.

In short, the company will save:

4000000000*28%*4.5%= 50,400,000  Annually

Value of tax cover will  be = (50,400,000/4.5%)*28% = 313,600,000

### (B) Complete the issuance of sek \$4b in debt?

When the Company reaches the issuing of SEK by \$4b in debt the cash of company will increase by \$4b and the total returns loans will increase by \$4b as well.

### (C) Complete the share repurchase?

When it completes the share repurchase then its cash will reduce by 4 billion as well as equity will also reduce by 4 billion. (Calculation shown in Performa worksheet)

When it overcomes the share repurchase , then it’s cash will decreased by \$4b and its shareholding will also be decreased by\$4b

### cap str recommendation

The company used their suggestion , and increased the amount of charges in its resources. The company increased the charges and used it to purchase the shares from the share market. Therefore the interest will be higher on the company , and they would have to produce enough cash to pay the interest otherwise it ranking will be affected.

The company should have the balance between the cost and profit , if it cost increases then it’s profit therefore the chances of loss would occur and they would have to shut down their business. And if it’s cost is less and profit is higher that is very suitable for the business. Therefore they will have to keep the balance between the cost and profits.

### Appendix

 Before Issuance After - issuance Cash ,S,T, Inve 3,002 7,002 Cur A 4,884 4,884 PP&E 2,712 2,712 Other A 4,300 4,300 I. Asst 26,042 26,042 T. Asst 40,940 44,940 C.L 3,776 3,776 Tot. Int-B. D 3,529 7,529 L.T. D 2,559 2,559 O. L 2,533 2,533 Equit 28,543 28,543 Tot L & Equ 40,940 44,940

 Before- Repurchase After- Repurchase Cash ,S,T, Inve 7,002 3,002 Cur A 4,884 4,884 PP&E 2,712 2,712 Other A 4,300 4,300 I. Asst 26,042 26,042 T. Asst 44,940 40,940 C.L 3,776 3,776 Tot. Int-B. D 7,529 7,529 L.T. D 2,559 2,559 O. L 2,533 2,533 Equit 28,543 24,543 Tot L & Equ 44,940 40,940

 Bond rating at issue Annual probability of default Current yield on 10-year European corporate bonds Company value Assumed A Bond (based on 5-year default rates) AAA 0.02% 3.8% E(COFD) AA 0.04% 3.9% \$28,379.52 [ P(default in a year) * (% of company lost if in distress)*Value of company ] / RD 12769.42424 A 0.10% 4.0% \$28,422.52 12788.77218 BBB 0.41% 4.5% \$26,399.99 11878.7286 BB 2.03% 5.5% \$22,371.66 10066.17546 B 5.23% 7.5% \$16,330.12 7347.771567 CCC-C 9.37% 10.5% \$8,254.52 3714.138497 313,600,000

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