A New Financial Policy at Swedish Match Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

A New Financial Policy at Swedish Match Case Solution

Q3) Using the “Pro forma” worksheet provided in the excel file, complete a 2005 pro Forma for Swedish match

Worksheet is performed on excel

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

Q6) What is your cap str recommendation to Swedish Mat?

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 ] / R_D	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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A New Financial Policy at Swedish Match Harvard Case Solution & Analysis