Upon receipt of Bayer’s proposal, your company’s Board of Directors has directed you, as Chief Financial Officer of Monsanto Corporation, to review key statistics and other information and report to the Board on the following:

1. Taking account of background information and other information supplied here, determine whether to accept or reject this proposal for $62B. For purposes of this analysis, consider discounted adjusted cash flow for only the current year, in which the firm is anticipated to grow at a rate of 3%. Evaluate each of the following:
   1. From given information (Table 7 will aid you in making these calculations, and has been provided for this purpose):
      1. Ascertain Monsanto’s weighted average cost of capital (WACC) and use this along with the firm’s growth rate to determine the discounted value of adjusted cash flows. Employ the discounted value of adjusted cash flows to determine how this offer compares to the present value of the firm’s adjusted cash flow (CFA*), using the firm’s WACC.
      2. Explain the importance that this has for the firm, and for shareholders, noting that this is an issue which you have not covered in previous Milestones - and thus you will use this additional measure alongside measures prepared in Milestone One, as you complete Milestone Three. Use information from all assigned readings to support your analyses.
   2. Justify your decision to accept or reject this offer using additional evidence drawn from ratio analysis, financial statement analysis, or time and trend analysis, refining your Milestone One analyses as applicable, given information covered in subsequent modules, and given current sales, equity and debt information included here.

2. With respect to the firm’s alternative proposal, determine:
   1. The extent to which Monsanto will have to take on additional debt, given that it wishes to retain its current dividend ratio and does not wish to sell additional equities.
   2. Calculate the firm’s sustainable growth rate and internal growth rate and use these measures to analyze a decision to accept this alternative proposal. Use these measures and concepts covered in assigned readings including EFN, DuPont Identity and leverage, Modules One through Eight, to explain the importance of these measures to shareholder interests.

Monsanto Firm Valuation

Valuation Component	Previous 3-Year Average	Year 1	Firm Value
EBIT	$3,511,347		Note that all values are in thousands. This table may be used to present your NPV calculations.
Depreciation	$674,000
Taxes*	$1,228,971
Change in NWC	$227,911
Capital Spending	$(1,000,000)
CFA*	3,728,464
Discount factor
Discounted CFA*				NPV
Debt	$12,359,933			NPV-Debt

Table 7. Monsanto Firm Valuation Using Average Expected Sales Based on 3-Year Average of Previous Results

Answer rating: 100% (QA)

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