Blades Acquisition NPV

Analysis of NPV of Potential Acquisition of Skates n Stuff (all figures in thousands of baht except total dollar NPV)

Future Item Value

Calculation

Item NPV

Skates n Stuff Purchase

N/A (same year)

Equipment Value yrs. 1-10

N/A (same year)

Value*(.88)

Value*(.88^2)

Value*(.88^3)

Value*(.88^4)

Value*(.88^5)

Value*(.88^6)

Value*(.88^7)

Value*(.88^8)

Value*(.88^9)

Sale of Skates n Stuff

Sales Increase (10 yr total)

N/A (paces inflation)

Variable Costs (10 yr total)

N/A (paces inflation)

Fixed Costs (10 yr total)

N/A (paces inflation)

Total NPV in bahts (thousands)

Total NPV in dollars (total, assuming 1 baht = $0.023)

30968840.6

1)

The numbers definitely warrant the purchase of Skates n Stuff. Despite the high inflation rate that is expected for the Thai baht, the net present value of such a purchase would be several times the...

Sales revenue would increase fairly significantly, and the value of the equipment being acquired contributes significantly to the cash potential of this option -- something that the establishment of a subsidiary could not provide at the same price point. In addition, the final sale of Skates n Stuff at the end of the equipment's depreciation allows for a final recoupment that would by no means preclude the establishment of a Blades' subsidiary in Thailand at that time. The increased sales revenue (included in the net present value calculation above) and the cost-savings from new parts suppliers (not included above due to complications form pre-existing sales contracts) are also definite incentives towards acquiring the company.
2)

The maximum amount that should be paid for Skates n Stuff is basically the lowest amount that the current owners will agree to. As the equipment is valued at 600 million baht, the owners are really only seeking 400 million baht as an equity payout from the total one billion baht purchase price they have currently offered. While this can doubtless be reduced to some degree, a savings of even one hundred million baht…